Download united states securities and exchange commission form 10 jbg smith

As filed with the Securities and Exchange Commission on June 9, 2017
File No. 001-37994
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 3 to
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT
OF 1934
JBG SMITH PROPERTIES
(Exact name of Registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
81-4307010
(I.R.S. employer
Identification number)
2345 Crystal Drive, Suite 1100
Arlington, Virginia
(Address of principal executive offices)
22202
(Zip Code)
(703) 769-8200
(Registrant’s telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class to be so registered
Name of each exchange on which
each class is to be registered
Common Shares, par value $0.01 per share
New York Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the
definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging
growth company’’ in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
(Do not check if
smaller reporting
company)
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use
the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. JBG SMITH Properties
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
Certain information required to be included herein is incorporated by reference to specifically
identified portions of the body of the information statement filed herewith as Exhibit 99.1 (the
‘‘information statement’’). None of the information contained in the information statement shall be
incorporated by reference herein or deemed to be a part hereof unless such information is specifically
incorporated by reference.
Item 1.
Business.
The information required by this item is contained under the sections of the information
statement entitled ‘‘Information Statement Summary,’’ ‘‘Risk Factors,’’ ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations,’’ ‘‘Business and Properties,’’ ‘‘Industry
Overview and Market Opportunity,’’ ‘‘Certain Relationships and Related Person Transactions,’’ ‘‘The
Separation and the Combination’’ and ‘‘Where You Can Find More Information.’’ Those sections are
incorporated herein by reference.
Item 1A.
Risk Factors.
The information required by this item is contained under the section of the information
statement entitled ‘‘Risk Factors.’’ That section is incorporated herein by reference.
Item 2.
Financial Information.
The information required by this item is contained under the sections of the information
statement entitled ‘‘Summary Historical Combined Financial Data,’’ ‘‘Summary Unaudited Pro Forma
Combined Financial Data,’’ ‘‘Selected Historical Combined Financial Data,’’ ‘‘Unaudited Pro Forma
Combined Financial Statements,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and
Results of Operations,’’ and ‘‘Index to Financial Statements’’ and the statements referenced therein.
Those sections are incorporated herein by reference.
Item 3.
Properties.
The information required by this item is contained under the section of the information
statement entitled ‘‘Business and Properties—Our Assets.’’ That section is incorporated herein by
reference.
Item 4.
Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is contained under the section of the information
statement entitled ‘‘Security Ownership of Certain Beneficial Owners and Management.’’ That section
is incorporated herein by reference.
Item 5.
Directors and Executive Officers.
The information required by this item is contained under the section of the information
statement entitled ‘‘Management.’’ That section is incorporated herein by reference.
Item 6.
Executive Compensation.
The information required by this item is contained under the section of the information
statement entitled ‘‘Compensation Discussion and Analysis.’’ That section is incorporated herein by
reference.
Item 7.
Certain Relationships and Related Transactions.
The information required by this item is contained under the sections of the information
statement entitled ‘‘Management’’ and ‘‘Certain Relationships and Related Person Transactions.’’ Those
sections are incorporated herein by reference.
Item 8.
Legal Proceedings.
The information required by this item is contained under the section of the information
statement entitled ‘‘Business—Legal Proceedings.’’ That section is incorporated herein by reference.
Item 9.
Market Price of, and Dividends on, the Registrant’s Common Equity and Related
Shareholder Matters.
The information required by this item is contained under the sections of the information
statement entitled ‘‘Dividend Policy,’’ ‘‘Capitalization,’’ ‘‘The Separation and the Combination,’’ and
‘‘Description of Shares of Beneficial Interest.’’ Those sections are incorporated herein by reference.
Item 10.
Recent Sales of Unregistered Securities.
The information required by this item is contained under the section of the information
statement entitled ‘‘Description of Shares of Beneficial Interest—Sale of Unregistered Securities.’’ That
section is incorporated herein by reference.
Item 11.
Description of Registrant’s Securities to be Registered.
The information required by this item is contained under the sections of the information
statement entitled ‘‘Dividend Policy,’’ ‘‘The Separation and the Combination,’’ ‘‘Description of Shares
of Beneficial Interest,’’ and ‘‘Certain Provisions of Maryland Law and of Our Declaration of Trust and
Bylaws.’’ Those sections are incorporated herein by reference.
Item 12.
Indemnification of Directors and Officers.
The information required by this item is contained under the section of the information
statement entitled ‘‘Certain Provisions of Maryland Law and of Our Declaration of Trust and Bylaws—
Limitation of Liability and Indemnification of Trustees and Officers.’’ That section is incorporated
herein by reference.
Item 13.
Financial Statements and Supplementary Data.
The information required by this item is contained under the section of the information
statement entitled ‘‘Index to Financial Statements’’ and the financial statements referenced therein.
That section is incorporated herein by reference.
Item 14.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 15.
(a)
Financial Statements and Exhibits.
Financial Statements
The information required by this item is contained under the section of the information
statement entitled ‘‘Index to Financial Statements’’ and the financial statements referenced therein.
That section is incorporated herein by reference.
2
(b)
Exhibits
The following documents are filed as exhibits hereto:
Exhibit No.
Exhibit Description
2.1**
Master Transaction Agreement, dated as of October 31, 2016, by and among Vornado
Realty Trust, Vornado Realty L.P., JBG Properties, Inc., JBG/Operating Partners, L.P.,
certain affiliates of JBG Properties Inc. and JBG/Operating Partners set forth on
Schedule A thereto, JBG SMITH Properties and JBG SMITH Properties LP
2.2**
Form of JBG LLC Merger Agreement
2.3**
Form of JBG Fund Contribution Agreement
2.4**
Form of JBG Partnership Merger Agreement
2.5**
Form of JBG Properties Contribution Agreement
2.6**
Form of JBG Managing Member Contribution Agreement
2.7**
Form of Separation and Distribution Agreement by and among Vornado Realty Trust,
Vornado Realty L.P., JBG SMITH Properties and JBG SMITH Properties LP
3.1**
Form of Declaration of Trust of JBG SMITH Properties, as amended and restated
3.2**
Form of Amended and Restated Bylaws of JBG SMITH Properties
10.1*
Form of Limited Partnership Agreement of JBG SMITH Properties LP, as amended and
restated
10.2**
Form of Transition Services Agreement by and between Vornado Realty Trust and JBG
SMITH Properties
10.3†
Form of Tax Matters Agreement by and between Vornado Realty Trust and JBG SMITH
Properties
10.4†
Form of Employee Matters Agreement by and among Vornado Realty Trust, Vornado
Realty L.P., JBG SMITH Properties and JBG SMITH Properties LP
10.5†
Employment Agreement, dated as of October 31, 2016, by and between JBG SMITH
Properties and W. Matthew Kelly
10.6†
Employment Agreement, dated as of October 31, 2016, by and between JBG SMITH
Properties and James L. Iker
10.7†
Employment Agreement, dated as of October 31, 2016, by and between JBG SMITH
Properties and David P. Paul
10.8†
Employment Agreement, dated as of October 31, 2016, by and between JBG SMITH
Properties and Brian P. Coulter
10.9†
Employment Agreement, dated as of October 31, 2016, by and between JBG SMITH
Properties and Kevin P. Reynolds
10.10†
Employment Agreement, dated as of October 31, 2016, by and between JBG SMITH
Properties and Robert A. Stewart
10.11†
Form of JBG SMITH Properties 2017 Omnibus Share Plan
10.12**
Form of JBG SMITH Properties Unit Issuance Agreement
3
Exhibit No.
Exhibit Description
10.13**
Form of Indemnification Agreement between JBG SMITH Properties and each of its
trustees and executive officers
10.14†
Forms of Registration Rights Agreement by and among JBG SMITH Properties and the
holders listed on Schedule I thereto
10.15†
Formation Unit Grant Letter, dated as of October 31, 2016, by and between JBG
SMITH Properties and Steven Roth
10.16**
Consulting Agreement, dated as of March 10, 2017, by and between JBG SMITH
Properties and Mitchell Schear
10.17*
Second Amended and Restated Continuation Agreement, dated as of
by and between Michael J. Glosserman and JBG/Operating Partners, L.P.
10.18**
Form of Formation Unit Agreement
10.19**
Form of Formation Unit Agreement for Non-Employee Trustees
10.20**
Form of Restricted LTIP Agreement
10.21**
Form of Performance LTIP Agreement
21.1**
Subsidiaries of JBG SMITH Properties
99.1**
Information Statement of JBG SMITH Properties, preliminary and subject to
completion, dated June 9, 2017
*
To be filed by amendment.
**
Filed herewith.
***
Incorporated by reference.
†
Filed previously.
4
, 2017,
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the
registrant has duly caused this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
JBG SMITH PROPERTIES
By: /s/ STEPHEN W. THERIOT
Name: Stephen W. Theriot
Title: Chief Financial Officer
Date: June 9, 2017
5
Exhibit 99.1
10NOV201423502343
Dear Vornado Realty Trust shareholders:
We are pleased to inform you that, on
, the board of trustees of Vornado Realty Trust
(‘‘Vornado’’) declared the distribution of all of the outstanding common shares of JBG SMITH
Properties (‘‘JBG SMITH’’), a newly formed wholly owned direct subsidiary of Vornado, to Vornado
common shareholders as of the record date of
. JBG SMITH will consist of Vornado’s
Washington, DC segment (which operates as Vornado / Charles E. Smith), which will be spun off and
combined with the management business and certain Washington, DC assets of The JBG Companies
(‘‘JBG’’), one of the premier real estate companies in the Washington, DC metropolitan area. JBG
SMITH’s common shares will be listed on the New York Stock Exchange as a new public company
focused on the Washington, DC market. Upon completion of the transaction, which is known as a
tax-free spin-merge, Vornado shareholders are expected to own approximately 73% of JBG SMITH,
subject to certain adjustments.
Washington, DC, our nation’s capital, is one of the nation’s premier Gateway Markets and an
international hub of economic activity. We believe JBG SMITH, with its outstanding portfolio of assets
and growth potential and led by JBG’s best-in-class management team, will be the ideal platform for
investment in Washington, DC.
This transaction marks a further step in our continuing strategy to simplify and focus Vornado’s
business to create shareholder value.
About JBG SMITH
Vornado/Charles E. Smith and JBG both have deep roots and a more than 50-year track
record of success in the Washington, DC metropolitan area. JBG SMITH will be the largest and
best-in-class, publicly traded, pure-play real estate company focused on the Washington, DC market. It
will hold, directly or indirectly:
• 68 operating assets aggregating approximately 20.2 million square feet (16.1 million square
feet at our share), comprised of 50 office assets aggregating approximately 14.1 million
square feet (12.1 million square feet at our share), 14 multifamily assets aggregating 6,016
units (4,232 units at our share) and four other assets aggregating approximately 765,000
square feet (348,000 square feet at our share);
• eight office and multifamily assets under construction totaling over 1.6 million square feet
(1.5 million square feet at our share);
• five near-term development (expected to commence construction within 18 months) office and
multifamily assets totaling over 1.3 million estimated square feet (1.0 million square feet at
our share); and
• 44 future development assets totaling over 22.1 million square feet (18.3 million square feet at
our share) of estimated potential development density.
As early as 2013, Vornado began to evaluate whether separating our Washington, DC business
would be beneficial to both our New York and Washington, DC businesses as a means of creating
shareholder value. We determined it would be. Although we evaluated a potential stand-alone spin-off
of our Washington, DC business and believe that it would have been a satisfactory outcome, it is our
firm conviction that the combination of the two premier platforms in the Washington, DC metropolitan
area, under the leadership of JBG management, is far superior and will create a world-class company.
With their successful track record of capital allocation and value creation, the JBG
management team is best suited to capitalize on the growth opportunities within both portfolios and to
execute on JBG SMITH’s unrivaled development pipeline. Importantly, JBG SMITH’s leadership will
be meaningfully aligned with the interests of shareholders, with the focus being on maximizing the
value of JBG SMITH common shares. JBG SMITH’s management team is expected to own
approximately 5% of the economic interests in JBG SMITH, which represents the majority of their
collective net worth, and JBG SMITH’s management team and board of trustees taken together are
expected to beneficially own or represent 13% of the economic interests in JBG SMITH.
We carefully selected from JBG’s funds a portfolio of assets with the best growth characteristics
that would diversify, complement and enhance the strategic concentration of Vornado / Charles E.
Smith’s existing portfolio. Our objective was to create a combined portfolio of high-quality assets,
including operating, development and land bank, that reinforced key attributes, including critical mass
in core and Metro-served markets; concentrations in complementary submarkets, particularly in
mixed-use environments; enhanced diversification; and assets that presented strong value-add
opportunities. We excluded assets that did not fit these objectives and were not appropriate for a public
REIT: specifically, those which were non-Metro-served; highly levered, single tenant flat leases;
near-term sale candidates; hotels; condominiums; and townhouses. These assets will be disposed of in
conjunction with the natural wind-down of the legacy JBG funds, and JBG SMITH will not raise any
new investment funds going forward.
The combined portfolio will be unmatched in scale, asset quality and urban infill concentration,
and diversified in terms of both asset class and submarkets. JBG SMITH will have a significant
presence in the best submarkets of the DC region including Downtown DC, Crystal City,
Pentagon City, Rosslyn, Reston and Bethesda. Over 98% of the portfolio is Metro-served.
JBG SMITH will own a large land bank of developable land comprised of over 22.1 million
square feet (18.3 million square feet at our share) of potential development density, which we view as a
long-term driver of JBG SMITH’s growth. This pipeline has the potential to double the size of JBG
SMITH and make JBG SMITH the fastest growing real estate company in the nation. We expect that
JBG SMITH will be a major developer of multifamily assets and that over time its mix of assets will
become more balanced between office and multifamily.
There is also a remarkable opportunity within JBG SMITH’s Crystal City holdings. This is
Exhibit A for why we undertook this deal with the JBG management team and presents an opportunity
for tremendous value creation. The Crystal City market has many compelling features such as its
unbelievable location with close proximity to key demand drivers and wonderful views of the Potomac
River and downtown Washington, DC, but it currently lacks sufficient residential scale, amenities and a
true retail core. Our vast holdings here will allow the JBG SMITH team to flex its Placemaking
muscles on an unprecedented scale to drive occupancy and rent growth.
We believe in the future of JBG SMITH. The company is uniquely positioned to outperform
based upon its substantial growth opportunities, the expected upswing of the broader Washington, DC
real estate market, and its best-in-class management team significantly incentivized for performance.
We view JBG SMITH as a win for our shareholders and a unique investment opportunity in the public
markets.
Vornado RemainCo
Over the past few years and including this transaction, Vornado has exited and spun off
multiple business lines and sold non-core holdings totaling $15.7 billion while redeploying $3.9 billion
of capital, upgrading the quality of our core New York City portfolio. Even as our flagship New York
business grew, the softening of the Washington, DC market overshadowed our New York portfolio’s
stellar performance. While Washington and New York are both international Gateway Markets, each
market is in a different stage of its economic cycle and there are limited synergies between the two
platforms. We believe that separating the two businesses, each with its own dedicated management
team, board of trustees and report card (i.e., stock price), will maximize value for our shareholders.
Accordingly, one of the most significant benefits of this transaction is that it will allow investors
to fully appreciate the New York City-focused, world class, irreplaceable office and high street retail
portfolio of the remaining Vornado business (‘‘RemainCo’’) (NYSE: VNO), and its industry leading
metrics and unique growth opportunities. RemainCo Same Store NOI compound annual growth rate
from 2005-2015 was 5.2%—greater than any blue-chip REIT peer. As a clear market leader in arguably
the world’s best market, we are one of only a handful of firms who have the capital base, track record,
talent, relationships, and trust in the marketplace to lease, acquire, develop, finance and manage
million square foot towers and Fifth Avenue retail. RemainCo will own 17.1 million square feet of
Class A Manhattan office properties in the best submarkets; the largest, highest-quality and unique
Manhattan high street retail portfolio, encompassing 2.9 million square feet in 70 properties on the best
streets (Fifth Avenue, Times Square, Madison Avenue, 34th Street/Penn Plaza, SoHo and Union
Square); and prime franchise assets in San Francisco (the 1.8 million square foot 555 California Street)
and Chicago (the 3.7 million square foot theMART). RemainCo will have a fortress balance sheet with
available liquidity, currently $4.1 billion, to take advantage of attractive market opportunities and
harvest value within our portfolio. Most significant is the unique re-development opportunity of our
9.0 million square feet in the Penn Plaza district. RemainCo is well positioned to grow and senior
management is laser-focused on driving shareholder value.
Upon the completion of this transaction, we will have created three highly-focused,
best-in-class, pure-play publicly traded REITs: RemainCo (NYSE: VNO), JBG SMITH (NYSE: JBGS)
and Urban Edge Properties (NYSE: UE), a growth-oriented portfolio of strip center retail assets in
high barrier locations that we spun off on January 15, 2015 and has since outperformed the RMS by
approximately 14% in total shareholder return performance.
The Mechanics of the Transaction
JBG SMITH was formed for the purpose of receiving, via contribution from Vornado, all of
the assets and liabilities of Vornado’s Washington, DC segment and combining that business with the
management business and certain Washington, DC assets of JBG. On the same date as Vornado
declared the distribution of JBG SMITH common shares described above, Vornado Realty L.P., the
operating partnership of Vornado (‘‘VRLP’’), declared the distribution of all of the common limited
partnership units of JBG SMITH Properties LP, a wholly owned subsidiary of VRLP which will be the
operating partnership of JBG SMITH (‘‘JBG SMITH LP’’), to Vornado and the other holders of
common limited partnership units of VRLP. Following such distribution by VRLP and prior to such
distribution by Vornado, Vornado will contribute to JBG SMITH all of the common limited partnership
units of JBG SMITH LP it receives in the distribution by VRLP in exchange for JBG SMITH common
shares. At 12:01 a.m. on the business day following the distribution by Vornado of JBG SMITH
common shares and the distribution by VRLP of JBG SMITH LP common limited partnership units,
JBG SMITH will be combined with the management business and certain Washington, DC
metropolitan area assets (the ‘‘JBG Included Assets’’) of JBG pursuant to the Master Transaction
Agreement, dated as of October 31, 2016 (the ‘‘MTA’’), by and among Vornado, VRLP, JBG
Properties, Inc., JBG/Operating Partners, L.P., certain affiliates of JBG Properties, Inc. and JBG/
Operating Partners, L.P., JBG SMITH and JBG SMITH LP. Upon completion of the combination, the
applicable JBG entities or certain direct and indirect owners of such JBG entities will receive from
JBG SMITH and JBG SMITH LP, respectively, in a private placement satisfying the requirements of
Regulation D of the Securities Act of 1933 (‘‘Regulation D’’), as amended, a number of JBG SMITH
common shares or JBG SMITH LP common limited partnership limits, or in certain circumstances,
cash consideration. At close, Vornado shareholders are expected to own approximately 73% of JBG
SMITH, subject to certain adjustments.
The distribution of JBG SMITH common shares and JBG SMITH LP common limited
partnership units will occur on
. Vornado will distribute all of its JBG SMITH common shares
by way of a pro rata special distribution to
Vornado common shareholders as of the record
date. Prior to such distribution by Vornado, as part of the transactions to effect the separation of JBG
SMITH from Vornado, VRLP will distribute all of the common limited partnership units of JBG
SMITH LP on a pro rata basis to the holders of its common limited partnership units, consisting of
Vornado and the other common limited partners of VRLP. Each Vornado common shareholder will be
entitled to receive one JBG SMITH common share for every two Vornado common shares held by
such shareholder as of the close of business on
, which is the record date for the distributions by
Vornado and VRLP. Vornado and each of the other common limited partners of VRLP will be entitled
to receive one JBG SMITH LP common limited partnership unit for every two common limited
partnership units of VRLP held as of the close of business on the record date. The JBG SMITH
common shares will be issued in book-entry form only, which means that no physical share certificates
will be issued. Following such distribution by VRLP and prior to such distribution by Vornado,
Vornado will contribute to JBG SMITH all of the common limited partnership units of JBG
SMITH LP it receives in the distribution by VRLP in exchange for JBG SMITH common shares. The
distribution of JBG SMITH common shares by Vornado and the combination of JBG SMITH with the
JBG Included Assets are expected to qualify as generally tax-free for U.S. federal income tax purposes.
No vote of Vornado shareholders is required to approve the distributions by Vornado and
VRLP or the combination, and you are not required to take any action to receive your JBG SMITH
common shares. JBG has already obtained all requisite approvals from its investment funds for the
combination. Following the distribution, each Vornado common shareholder will own common shares in
Vornado and JBG SMITH and each VRLP common limited partner (other than Vornado) will own
common limited partnership units of both VRLP and JBG SMITH LP. The number of Vornado
common shares that each Vornado common shareholder owns will not change as a result of this
distribution. Immediately following the combination, in total and taking into account the indirect
interests in JBG SMITH’s assets that are held by the limited partners of JBG SMITH LP, the economic
interests in JBG SMITH are expected to be owned approximately 73% by Vornado common
shareholders and holders of VRLP common limited partnership units as of the record date, 21% by
JBG investors as of the date of the combination, and 6% by current JBG management, which
percentages are subject to change pursuant to certain closing adjustments set forth in the MTA.
Vornado’s common shares will continue to trade on the New York Stock Exchange under the
symbol ‘‘VNO’’. JBG SMITH’s common shares have been accepted for listing on the New York Stock
Exchange under the symbol ‘‘JBGS’’, subject to official notice of distribution.
The information statement, which is being mailed to all holders of Vornado common shares as
of the record date for the distribution by Vornado, describes the distribution and the combination in
detail and contains important information about JBG SMITH, its business, financial condition and
operations. We urge you to read the information statement carefully.
We want to thank you for your continued support of Vornado, and we look forward to your
future support of JBG SMITH.
Sincerely,
Steven Roth
Chairman and Chief Executive Officer of
Vornado Realty Trust
Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S.
Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended.
PRELIMINARY AND SUBJECT TO COMPLETION, DATED JUNE 9, 2017
INFORMATION STATEMENT
JBG SMITH Properties
This information statement is being furnished in connection with the distribution by Vornado Realty Trust (‘‘Vornado’’) to the
holders of common shares of beneficial interest, par value $0.04 per share (‘‘Vornado common shares’’), of Vornado, of all of the
outstanding common shares of beneficial interest, par value $0.01 per share (‘‘JBG SMITH common shares’’), of JBG SMITH Properties, a
Maryland real estate investment trust (‘‘JBG SMITH’’), and the distribution by Vornado Realty L.P., the operating partnership of Vornado
(‘‘VRLP’’), to the holders of VRLP common limited partnership units, of all of the common limited partnership units of JBG SMITH
Properties LP, a Delaware limited partnership and the operating partnership of JBG SMITH (‘‘JBG SMITH LP’’). JBG SMITH is a new,
wholly owned subsidiary of Vornado formed for the purpose of receiving, via contribution from Vornado, all of the assets and liabilities of
Vornado’s Washington, DC segment, and combining Vornado’s Washington, DC segment (which operates as Vornado / Charles E. Smith)
and the management business and certain Washington, DC assets of The JBG Companies (‘‘JBG’’). Following such distribution by VRLP
and prior to such distribution by Vornado, Vornado will contribute to JBG SMITH all of the common limited partnership units of JBG
SMITH LP it receives in the distribution by VRLP in exchange for JBG SMITH common shares. At 12:01 a.m. on the business day
following the distribution by Vornado of JBG SMITH common shares, JBG SMITH will be combined with the management business and
certain Washington, DC metropolitan area assets (the ‘‘JBG Included Assets’’) of JBG pursuant to the Master Transaction Agreement,
dated as of October 31, 2016 (the ‘‘MTA’’), by and among Vornado, VRLP, JBG Properties, Inc., JBG/Operating Partners, L.P., certain
affiliates of JBG Properties, Inc. and JBG/Operating Partners, L.P., JBG SMITH and JBG SMITH LP. Upon completion of the
combination, the applicable JBG parties or certain direct and indirect owners of such JBG parties will receive from JBG SMITH and JBG
SMITH LP, respectively, in a private placement satisfying the requirements of Regulation D of the Securities Act of 1933, as amended
(‘‘Regulation D’’), a number of JBG SMITH common shares or JBG SMITH LP common limited partnership units, or in certain
circumstances, cash consideration.
Following the combination, JBG SMITH will be the largest and best-in-class, publicly traded real estate company focused on the
Washington, DC market. It will hold, directly or indirectly, (i) 68 operating assets aggregating approximately 20.2 million square feet
(16.1 million square feet at our share), comprised of 50 office assets aggregating approximately 14.1 million square feet (12.1 million square
feet at our share), 14 multifamily assets aggregating 6,016 units (4,232 units at our share) and four other assets aggregating approximately
765,000 square feet (348,000 square feet at our share); (ii) eight office and multifamily assets under construction totaling over 1.6 million
square feet (1.5 million square feet at our share); (iii) five near-term development office and multifamily assets totaling over 1.3 million
estimated square feet (1.0 million square feet at our share) and (iv) 44 future development assets totaling over 22.1 million square feet
(18.3 million square feet at our share) of estimated potential development density.
To implement the distribution, Vornado will distribute all of its JBG SMITH common shares by way of a pro rata special
distribution to Vornado common shareholders. Prior to such distribution by Vornado, as part of the transactions to effect the separation of
JBG SMITH from Vornado, VRLP will distribute all of the common limited partnership units of JBG SMITH LP on a pro rata basis to
the holders of VRLP’s common limited partnership units, consisting of Vornado and the other common limited partners of VRLP.
Immediately following the combination, in total and taking into account the indirect interests in JBG SMITH’s assets that are held by the
limited partners of JBG SMITH LP, the economic interests in JBG SMITH are expected to be owned approximately 73% by Vornado
common shareholders and holders of VRLP common limited partnership units as of the record date, 21% by JBG investors as of the date
of the combination, and 6% by current JBG management, which percentages are subject to change pursuant to certain closing adjustments
set forth in the MTA. The distribution of JBG SMITH common shares by Vornado and the combination of JBG SMITH with the JBG
Included Assets are expected to qualify as generally tax-free for U.S. federal income tax purposes.
For every two Vornado common shares held of record by you as of the close of business on the record date, you will receive one
JBG SMITH common share. You will receive cash in lieu of any fractional JBG SMITH common shares that you would have received after
application of the above ratios. As discussed under ‘‘The Separation and the Combination—Trading Between the Record Date and
Distribution Date,’’ if you sell your Vornado common shares in the ‘‘regular-way’’ market (as opposed to the ‘‘ex-distribution’’ market) after
the record date and before the distribution, you also will be selling your right to receive JBG SMITH common shares in connection with
the separation. We expect the JBG SMITH common shares to be distributed to Vornado common shareholders on
. We refer to the
date of the distribution of the JBG SMITH common shares as the ‘‘distribution date.’’ You will continue to own the same number of
Vornado common shares as you own immediately before the distribution date.
No vote of Vornado shareholders is required to approve the distributions by Vornado and VRLP or the combination. We are not
asking you for a proxy and you are requested not to send us a proxy. You do not need to pay any consideration, exchange or surrender
your existing Vornado common shares or take any other action to receive your JBG SMITH common shares. JBG has already obtained all
requisite approvals from its investment funds for the combination.
There is no current trading market for JBG SMITH common shares, although we expect that a limited market, commonly known
as a ‘‘when-issued’’ trading market, will develop on or shortly before the record date for the distribution by Vornado, and we expect
‘‘regular-way’’ trading of JBG SMITH common shares to begin on the first trading day following the completion of the distribution. JBG
SMITH’s common shares have been accepted for listing on the New York Stock Exchange under the symbol ‘‘JBGS’’, subject to official
notice of distribution.
JBG SMITH intends to elect and qualify to be taxed as a real estate investment trust (‘‘REIT’’) for U.S. federal income tax
purposes, from and after JBG SMITH’s taxable year that includes the distribution of our common shares by Vornado. To assist JBG
SMITH in qualifying as a REIT, among other purposes, JBG SMITH’s declaration of trust will contain various restrictions on the
ownership and transfer of its shares of beneficial interest, including a provision pursuant to which shareholders will generally be restricted
from owning more than 7.5% of the outstanding shares of beneficial interest of any class or series, including JBG SMITH common shares
or preferred shares of beneficial interest, par value $0.01 per share, of JBG SMITH of any class or series. Please refer to ‘‘Description of
Shares of Beneficial Interest—Common Shares—Restrictions on Ownership of Common Shares.’’
In reviewing this information statement, you should carefully consider the matters described under
the caption ‘‘Risk Factors’’ beginning on page 59.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these
securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
The date of this information statement is
.
This information statement will be mailed to Vornado common shareholders as of
.
TABLE OF CONTENTS
Page
PRESENTATION OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INFORMATION STATEMENT SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND THE COMBINATION .
SUMMARY HISTORICAL COMBINED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . .
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA . . . . . . . . . . . .
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS . . . .
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SELECTED HISTORICAL COMBINED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . .
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS . . . . . . . . . . . . . . .
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BUSINESS AND PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDUSTRY OVERVIEW AND MARKET OPPORTUNITY . . . . . . . . . . . . . . . . . . . . . . . .
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
THE SEPARATION AND THE COMBINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DESCRIPTION OF MATERIAL INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST . . . . . . . . . . . . . . . . . . . . . . .
CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR DECLARATION OF
TRUST AND BYLAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . .
TAXATION OF HOLDERS OF JBG SMITH COMMON SHARES . . . . . . . . . . . . . . . . . . .
SHARES ELIGIBLE FOR FUTURE SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PARTNERSHIP AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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F-1
PRESENTATION OF INFORMATION
Except as otherwise indicated or unless the context otherwise requires, the information
included in this information statement about JBG SMITH Properties, a Maryland real estate
investment trust (‘‘JBG SMITH’’), assumes the completion of all of the transactions referred to in this
information statement in connection with the separation, the distributions by each of Vornado Realty
Trust (‘‘Vornado’’) and Vornado Realty L.P. (‘‘VRLP’’) and the combination, and references to JBG
SMITH’s historical business and operations refer to the business and operations of the office,
multifamily and other commercial assets to be contributed by Vornado and JBG, comprised of
(i) 68 operating assets aggregating approximately 20.2 million square feet (16.1 million square feet at
our share), comprised of 50 office assets aggregating approximately 14.1 million square feet
(12.1 million square feet at our share), 14 multifamily assets aggregating 6,016 units (4,232 units at our
share) and four other assets aggregating approximately 765,000 square feet (348,000 square feet at our
share); (ii) eight office and multifamily assets under construction totaling over 1.6 million square feet
(1.5 million square feet at our share); (iii) five near-term development office and multifamily assets
totaling over 1.3 million estimated square feet (1.0 million square feet at our share) and (iv) 44 future
development assets totaling over 22.1 million square feet (18.3 million square feet at our share) of
estimated potential development density, as well as Vornado’s and JBG’s respective Washington, DC
management businesses, that will be transferred to JBG SMITH in connection with the separation and
the combination as if such transferred businesses were JBG SMITH’s business for all historical periods
described. Unless the context otherwise requires, references in this information statement to ‘‘our
company,’’ ‘‘the company,’’ ‘‘us,’’ ‘‘our,’’ and ‘‘we’’ refer to JBG SMITH and its subsidiaries following
the separation and the combination. Except as otherwise indicated or unless the context otherwise
requires, all references to JBG SMITH per share data assume (i) a distribution ratio of one JBG
SMITH common share for every two Vornado common shares, for purposes of the distribution by
Vornado to its common shareholders, (ii) a distribution ratio of one common limited partnership unit
of JBG SMITH Properties LP (‘‘JBG SMITH LP’’) for every two common limited partnership units of
VRLP, for purposes of the distribution by VRLP to its holders of common limited partnership units
(also referred to in this information statement as ‘‘common limited partners’’) and (iii) the issuance of
approximately 23.8 million JBG SMITH common shares and approximately 13.4 million common
limited partnership units of JBG SMITH LP expected to be issued to the JBG designees in connection
with the combination.
We present certain financial information and metrics in this information statement ‘‘at JBG
SMITH Share,’’ which refers to our ownership percentage of consolidated and unconsolidated assets in
joint ventures (collectively, ‘‘partially owned entities’’). Financial information ‘‘at JBG SMITH Share’’ is
calculated on an entity-by-entity basis. ‘‘At JBG SMITH Share’’ information, which we also refer to as
being ‘‘at share,’’ ‘‘our pro rata share’’ or ‘‘our share,’’ is not, and is not intended to be, a presentation
in accordance with GAAP. Given that approximately 30% of our assets, as measured by total square
feet, are held through joint ventures, we believe this form of presentation, which presents our economic
interests in the partially owned entities, provides investors important information regarding a significant
component of our portfolio, its composition, performance and capitalization.
We do not control the unconsolidated joint ventures and do not have a legal claim to our coventurers’ share of assets, liabilities, revenue and expenses. The operating agreements of the
unconsolidated joint ventures generally allow each co-venturer to receive cash distributions to the
extent there is available cash from operations. The amount of cash each investor receives is based upon
specific provisions of each operating agreement and varies depending on certain factors including the
amount of capital contributed by each investor and whether any investors are entitled to preferential
distributions.
With respect to any such third-party arrangement, we would not be in a position to exercise
sole decision making authority regarding the property, joint venture or other entity, and may, under
ii
certain circumstances, be exposed to economic risks not present were a third party not involved. We
and our respective co-venturers may each have the right to trigger a buy-sell or forced sale
arrangement, which could cause us to sell our interest, or acquire our co-venturers’ interests, or to sell
the underlying asset, either on unfavorable terms or at a time when we otherwise would not have
initiated such a transaction. Our joint ventures may be subject to debt, and the refinancing of such debt
may require equity capital calls. To the extent our co-venturers do not meet their obligations to us or
our joint ventures or they take action inconsistent with the interests of the joint venture, we may be
adversely affected. See ‘‘Risk Factors—Risks Related to our Business and Operations—Partnership or
joint venture investments could be adversely affected by our lack of sole decision-making authority, our
reliance on our partners’ or co-venturers’ financial condition and disputes between us and our partners
or co-venturers’’. Because of these limitations, the non-GAAP ‘‘at JBG SMITH Share’’ financial
information should not be considered in isolation or as a substitute for our financial statements as
reported under GAAP. For more information on our joint venture arrangements, see ‘‘Our Joint
Venture Arrangements’’, beginning on page 190.
Unless the context otherwise requires, the terms listed below have the meanings set forth next
to such terms.
‘‘annualized rent’’ (i) for office and other assets, or the retail component of a mixed-use asset,
represents in-place monthly base rent before free rent, plus tenant reimbursements as of March 31,
2017, multiplied by 12, with triple net leases converted to a gross basis by adding estimated tenant
reimbursements to monthly base rent, and (ii) for multifamily assets, or the multifamily component of a
mixed-use asset, represents in-place monthly base rent before free rent as of March 31, 2017, multiplied
by 12. Annualized rent excludes rent from signed but not yet commenced leases.
‘‘buy-sell right’’ means a right pursuant to which one member (the ‘‘initiating member’’) of a
joint venture may, if certain conditions are met, force the other member (the ‘‘non-initiating member’’)
to either, with the choice to be made by the non-initiating member, (1) sell its interest in the joint
venture to the initiating member or (2) purchase the initiating member’s interest in the joint venture, in
either case for a price based on a value for the joint venture’s property proposed by the initiating
member.
‘‘close-in’’ describes a neighborhood or submarket that is located within 10 miles of the White
House.
The ‘‘combination’’ means the combination of JBG SMITH, following the separation, with the
management business and certain select assets of JBG in accordance with the MTA.
‘‘common limited partners’’ means holders of common limited partnership units of VRLP or
JBG SMITH LP, as applicable.
‘‘densification’’ means the reduction in square feet leased per worker.
The ‘‘distribution’’ means, unless otherwise specified, the pro rata distribution by Vornado to
its common shareholders of all JBG SMITH common shares held by Vornado.
The ‘‘distribution by VRLP’’ means the pro rata distribution by VRLP, immediately prior to
the distribution by Vornado, of all outstanding JBG SMITH LP common limited partnership units to
holders of VRLP’s common limited partnership units, consisting of Vornado and the other common
limited partners of VRLP.
‘‘equity multiple’’ represents (a) the sum of (i) the total contributions and distributions from
investments received or projected to be received by the applicable fund, calculated on a quarterly basis,
plus (ii) the equity invested or projected to be invested divided by (b) the equity invested or projected
to be invested.
iii
‘‘estimated incremental investment’’ reflects management’s estimates of all remaining
acquisition costs, hard costs, soft costs, tenant improvements, leasing costs and other similar costs to
develop and stabilize an asset as of March 31, 2017, excluding any financing costs and ground rent
expenses.
‘‘estimated potential development density’’ reflects management’s estimate of developable gross
square feet based on its current business plans with respect to real estate owned or controlled as of
March 31, 2017.
‘‘FAR’’ means floor to area ratio, which is generally the ratio of the total square feet of a
building (existing or planned) divided by the square feet of the lot on which the building is situated.
‘‘free rent’’ means the period at inception of a tenant’s lease during which the tenant does not
pay base rent and operating expenses, as provided for under the lease agreement.
‘‘future development pipeline’’ refers to assets that are development opportunities on which we
do not intend to commence construction within 18 months of March 31, 2017 where we (i) own land or
control the land through a ground lease (16.0 million square feet of estimated potential development
density at our share) or (ii) are under a long-term conditional contract to purchase, or enter into a
leasehold interest with respect to, land (2.3 million square feet of estimated potential development
density at our share).
‘‘GAAP’’ means accounting principles generally accepted in the United States.
‘‘Gateway Markets’’ means those metropolitan areas that receive the largest volumes of
inbound investment capital and have the highest levels of institutional ownership. These markets are
generally characterized by advanced infrastructure and connectivity to a wide range of domestic and
international destinations as well as a deep pool of educated workers, an extensive network of public
and private institutions and concentrations of Fortune 500 and/or high-profile headquarters. Although
not necessarily the fastest-growing cities nationally, Gateway Markets provide long-term stability for
both owners and occupiers. Gateway Markets generally command the highest rents and pricing for
top-tier assets and achievable per-square-foot sales pricing is comparable to other global business hubs.
‘‘GDP’’ means gross domestic product.
‘‘gross leveraged IRR’’ represents the leveraged internal rate of return based on (i) equity
invested or projected to be invested and (ii) the total projected distributions from investments
(including the return of equity invested), received by the applicable fund, less all sales costs, debt
service and all other property level fees where applicable, but before deduction of carried interests and
asset management fees where applicable. For investments that are subject to a joint venture, gross
leveraged IRR reflects the impact of any promote that was either paid or earned or projected to be
paid or earned.
‘‘GSA’’ means the General Services Administration, which is the independent federal
government agency that manages real estate procurement for the federal government and federal
agencies.
‘‘Included Assets’’ means the Vornado Included Assets and the JBG Included Assets.
‘‘JBG’’ refers to JBG/Operating Partners, L.P. and its affiliated entities that conduct business
under The JBG Companies trade name.
‘‘JBG Contributing Funds’’ means JBG/Urban Direct Member, L.L.C., JBG/Urban
Development Investment Partner L.L.C. and the four JBG Funds (i.e., JBG Investment Fund VI,
L.L.C., JBG Investment Fund VII, L.L.C., JBG Investment Fund VIII, L.L.C. and JBG Investment
Fund IX, L.L.C.) that are contributing interests in real assets to us in the combination.
iv
‘‘JBG Funds’’ means the nine real estate investment funds JBG has raised since 1999.
‘‘JBG Included Assets’’ means the JBG Included Properties and certain other assets related
thereto, including JBG/Operating Partners L.P.
‘‘JBG Included Properties’’ means the portfolio of assets in the Washington, DC metropolitan
area to be contributed to JBG SMITH by JBG, consisting of (i) 30 operating assets comprised of
19 office assets totaling approximately 3.6 million square feet (2.3 million square feet at JBG’s share),
nine multifamily assets with 2,883 units (1,099 units at JBG’s share) and two other assets totaling
approximately 490,000 square feet (73,000 square feet at JBG’s share); (ii) eight office and multifamily
assets under construction totaling over 1.6 million square feet (1.5 million square feet at JBG’s share);
(iii) five near-term development office and multifamily assets totaling over 1.3 million estimated square
feet (1.0 million square feet at JBG’s share) and (iv) 26 future development assets totaling
over 11.7 million square feet (8.5 million square feet at JBG’s share) of estimated potential
development density.
‘‘JBG Parties’’ means JBG Properties Inc., JBG/Operating Partners L.P., JBG Investment
Fund VI, L.L.C., JBG Investment Fund VII, L.L.C., JBG Investment Fund VIII, L.L.C.,
JBG Investment Fund IX, L.L.C. and JBG/Urban Direct Member, L.L.C.
‘‘JBG SMITH,’’ ‘‘our company,’’ ‘‘the company,’’ ‘‘us,’’ ‘‘our’’ and ‘‘we’’ refer to JBG SMITH
Properties, a Maryland real estate investment trust, and its subsidiaries.
‘‘JBG SMITH common shares’’ means common shares of beneficial interest, par value
$0.01 per share, of JBG SMITH.
‘‘JBG SMITH LP’’ means JBG SMITH Properties LP, JBG SMITH’s operating partnership.
The ‘‘JBG SMITH portfolio’’ means (i) 68 operating assets aggregating approximately
20.2 million square feet (16.1 million square feet at our share), comprised of 50 office assets
aggregating approximately 14.1 million square feet (12.1 million square feet at our share), 14
multifamily assets aggregating 6,016 units (4,232 units at our share) and four other assets aggregating
approximately 765,000 square feet (348,000 square feet at our share); (ii) eight office and multifamily
assets under construction totaling approximately over 1.6 million square feet (1.5 million square feet at
our share); (iii) five near-term development office and multifamily assets totaling over 1.3 million
estimated square feet (1.0 million square feet at our share) and (iv) 44 future development assets
totaling over 22.1 million square feet (18.3 million square feet at our share) of estimated potential
development density in the Washington, DC metropolitan area, to be transferred to JBG SMITH by
Vornado and JBG in the separation and the combination.
‘‘JBG SMITH Share’’ refers to JBG SMITH’s ownership percentage of consolidated and
unconsolidated assets applied to the specified metric.
‘‘JLL’’ means Jones Lang LaSalle Americas, Inc., a nationally recognized real estate consulting
firm.
‘‘MTA’’ means the Master Transaction Agreement, dated as of October 31, 2016, by and among
Vornado, VRLP, the JBG Parties, JBG SMITH and JBG SMITH LP.
‘‘Metro’’ refers to the public transportation network serving the Washington, DC metropolitan
area operated by the Washington Metropolitan Area Transit Authority.
‘‘Metro-served’’ means locations, submarkets or assets that are generally nearby and within
walking distance of a Metro station, defined as being within 0.5 miles of an existing or planned Metro
station.
‘‘NAREIT’’ means the National Association of Real Estate Investment Trusts.
v
‘‘near-term development’’ refers to assets that have substantially completed the entitlement
process and on which we intend to commence construction within the 18 months following March 31,
2017, subject to market conditions.
‘‘net absorption’’ means the net change in physically occupied space over the applicable review
period. Net absorption takes into account move-ins and move-outs within the existing office stock as
well as the change in occupied space resulting from the delivery of newly constructed buildings and
conversion/demolition of buildings over the review period. The resulting increase or decrease in
physically occupied space relative to the starting inventory is characterized as net absorption. Net
absorption may be expressed in square footage, or square footage as a percent of inventory based on
the square footage at the start of the measurement period.
‘‘percent leased’’ is based on leases signed as of March 31, 2017 and is calculated as total
rentable square feet less rentable square feet available for lease divided by total rentable square feet.
‘‘percent pre-leased’’ is based on leases signed as of March 31, 2017 and is calculated as the
estimated rentable square feet leased divided by estimated total rentable square feet expressed as a
percentage.
‘‘percent occupied’’ is based on occupied rentable square feet/units as of March 31, 2017 and is
calculated as (i) for office and retail space, total rentable square feet less unoccupied square feet
divided by total rentable square feet, (ii) for multifamily space, total units less unoccupied units divided
by total units, expressed as a percentage.
‘‘recently delivered’’ means assets that have been delivered within the 12 months ended
March 31, 2017.
‘‘record date’’ means
, the record date for the distribution of JBG SMITH common
shares by Vornado and for the distribution by JBG SMITH LP common limited partnership units by
VRLP.
‘‘REIT’’ means a real estate investment trust.
‘‘SEC’’ means the U.S. Securities and Exchange Commission.
‘‘Securities Act’’ means the U.S. Securities Act of 1933, as amended.
The ‘‘separation’’ means the separation from Vornado of the Vornado Included Assets from
Vornado’s other businesses.
‘‘signed but not yet commenced leases’’ means leases for assets in JBG SMITH’s portfolio that,
as of March 31, 2017, have been executed but for which the contractual lease term had not yet begun
and no rental payments had yet been received. As of March 31, 2017, this included 35 leases with
annualized base rental revenues of over $58.1 million ($43.1 million at our share).
‘‘square feet’’ or ‘‘SF’’ means the amount of rentable square feet of a property that can be
rented to tenants, defined as (i) for office and other assets, rentable square footage defined in the
current lease and for vacant space the rentable square footage defined in the previous lease for that
space, (ii) for multifamily assets, management’s estimate of approximate rentable square feet, (iii) for
the assets under construction and the near-term development assets, management’s estimate of actual
rentable square feet based on current design plans as of March 31, 2017, or (iv) for the future
development assets, management’s estimate of developable gross square feet based on its current
business plans with respect to real estate owned or controlled as of March 31, 2017.
The ‘‘transaction’’ means the separation, distribution and combination, collectively.
‘‘under construction’’ refers to assets that were under construction as of March 31, 2017.
vi
‘‘urban-infill’’ refers to new development or an existing asset that is sited on vacant or
undeveloped land within an existing community, and that is surrounded by other types of development.
‘‘Vornado’’ means Vornado Realty Trust, a Maryland real estate investment trust, and its
consolidated subsidiaries, including Vornado Realty L.P.
‘‘Vornado common shares’’ means common shares of beneficial interest, par value $0.04 per
share, of Vornado.
‘‘Vornado Included Assets’’ means the Vornado Included Properties, the Vornado Included
Entities, the Vornado Included Investments and other assets related thereto, which includes all of the
assets and liabilities of Vornado’s Washington, DC segment (other than our 46.2% interest in Rosslyn
Plaza) and excludes Vornado’s 7.5% interest in Fashion Centre Mall and 3040 M Street.
‘‘Vornado Included Entities’’ means the entities through which VRLP directly or indirectly
holds the Vornado Included Properties that are to be transferred to JBG SMITH LP prior to the
distribution.
‘‘Vornado Included Investments’’ means certain debt and equity investments owned by certain
Vornado Included Entities in certain third-party entities.
‘‘Vornado Included Properties’’ means the portfolio of Vornado/Charles E. Smith assets in the
Washington, DC metropolitan area to be contributed to JBG SMITH by Vornado, consisting of
(i) 38 operating assets comprised of 31 office assets totaling over 10.5 million square feet (9.8 million
square feet at Vornado’s share), five wholly owned multifamily assets with 3,133 units and two wholly
owned other assets totaling approximately 275,000 square feet and (ii) 18 future development assets
totaling over 10.4 million square feet (9.8 million square feet at Vornado’s share) of estimated potential
development density.
‘‘VRLP’’ means Vornado Realty L.P., a Delaware limited partnership through which Vornado
conducts its business and holds substantially all of its interests in assets.
‘‘Washington, DC metropolitan area’’ means the contiguous metropolitan area, centered on the
District of Columbia, which also includes certain adjacent, nearby counties in Northern Virginia and
Southern Maryland.
Market Data
We use market data throughout this information statement. We have obtained the information
contained in the sections entitled ‘‘Summary—Industry Overview and Market Opportunity’’ and
‘‘Industry Overview and Market Opportunity’’ and certain information contained in the section entitled
‘‘Business and Properties’’ from market research prepared for us by Jones Lang LaSalle Americas, Inc.,
or JLL, a nationally recognized real estate consulting firm, and such information is included in this
information statement in reliance on JLL’s authority as an expert in such matters. In addition, we have
obtained certain market data from publicly available information and industry publications. These
sources generally state that the information they provide has been obtained from sources believed to be
reliable, but the accuracy and completeness of the information are not guaranteed. The forecasts and
projections are based on industry surveys and the preparers’ experience in the industry, and there is no
assurance that any of the projections or forecasts will be achieved. We believe that the surveys and
market research others have performed are reliable, but we have not independently verified this
information.
vii
INFORMATION STATEMENT SUMMARY
The following is a summary of material information discussed in this information statement.
This summary may not contain all of the details concerning the transaction or other information that
may be important to you. To better understand the separation, the distribution, the combination and
JBG SMITH’s business and financial position, you should carefully review this entire information
statement. Except as otherwise indicated or unless the context otherwise requires, the information
included in this information statement assumes the completion of all of the transactions referred to in
this information statement in connection with the separation, the distributions by each of Vornado and
VRLP and the combination, and references to JBG SMITH’s historical business and operations refer to
the business and operations of those office, multifamily and other commercial assets to be contributed
by Vornado and The JBG Companies (which we refer to as JBG), comprised of (i) 68 operating assets
aggregating approximately 20.2 million square feet (16.1 million square feet at our share), comprised of
50 office assets aggregating approximately 14.1 million square feet (12.1 million square feet at our
share), 14 multifamily assets aggregating 6,016 units (4,232 units at our share) and four other assets
aggregating approximately 765,000 square feet (348,000 square feet at our share); (ii) eight office and
multifamily assets under construction totaling over 1.6 million square feet (1.5 million square feet at
our share); (iii) five near-term development office and multifamily assets totaling over 1.3 million
estimated square feet (1.0 million square feet at our share) and (iv) 44 future development assets
totaling over 22.1 million square feet (18.3 million square feet at our share) of estimated potential
development density, as well as Vornado’s and JBG’s respective Washington, DC management
businesses, that will be transferred to JBG SMITH in connection with the separation and the
combination as if such transferred businesses were JBG SMITH’s business for all historical periods
described. For a glossary of certain terms used in this information statement, please refer to
‘‘Presentation of Information.’’
Our Company
JBG SMITH represents the combination of Vornado’s Washington, DC segment (which
operates as Vornado / Charles E. Smith) and the management business and certain Washington, DC
metropolitan area assets of The JBG Companies. Vornado / Charles E. Smith and The JBG Companies
are two of the largest, most noteworthy, best-in-class Washington, DC focused real estate franchises,
each with an over 50-year history of operations in the Washington, DC metropolitan area.
We believe that the combination of Vornado / Charles E. Smith and The JBG Companies
results in the following key strengths and competitive advantages that will contribute to our future
success:
• We are the market-leading and largest publicly traded real estate company focused on the
Washington, DC metropolitan area;
• Our assets consist of high-quality office, multifamily and retail properties concentrated in
what we believe are the most attractive Metro-served, urban-infill submarkets;
• We have a demonstrated track record of combining these uses in vibrant, amenity-rich
mixed-use projects that create and sustain value and competitive advantage over time;
• We believe that we are positioned for substantial revenue growth driven by near-term
opportunities embedded in our existing operating portfolio and our unrivaled near-term and
future development pipelines, which could allow us to roughly double the size of our
portfolio based on square footage and further enhance the quality of the portfolio;
• Our best-in-class Washington, DC area management platform has proven investment,
operating and development skills and leverages our experience in the use of our Placemaking
strategy to unlock value in large scale projects and neighborhood repositionings;
1
• We expect to access compelling acquisition opportunities with strong prospects for growth
through our proven acquisition platform that combines the longstanding market
relationships, reputation and expertise of both the Vornado and JBG Washington, DC
platforms;
• Our disciplined, research-based approach ensures our investment decisions are based on
current and forecasted market fundamentals and trends, which allows us to identify value
creating development, redevelopment and acquisition opportunities in existing and new
high-growth submarkets;
• We have a proven track record of superior capital allocation across investment opportunities
and market cycles;
• We will have a well-capitalized balance sheet and access to a broad range of funding sources
which will allow us to fund our significant growth opportunities while maintaining prudent
leverage levels; and
• We believe the Washington, DC metropolitan area economy and office market have
bottomed and that the region’s real estate market is uniquely positioned to experience a
stronger recovery over the next 24 to 36 months compared to other Gateway Markets.
Our Strategy
Our mission is to own and operate a high-quality portfolio of Metro-served, urban-infill office,
multifamily and retail assets concentrated in downtown Washington, DC, our nation’s capital, and other
leading urban infill submarkets with proximity to downtown Washington, DC and to grow this portfolio
through value-added development and acquisitions. We have significant expertise in the Washington,
DC metropolitan area across multiple product types and consider office, multifamily and retail to be
our core asset classes. We are known for our creative deal-making and capital allocation skills and for
our deep pool of development and value creation expertise across product types. As the leading local
sharpshooter, our DC market experience is best-in-class and we have been trendsetters in our market
by mixing uses in projects that deliver the amenities and features that tenants demand.
One of our approaches to value creation involves utilizing a series of complementary disciplines
through a process that we call ‘‘Placemaking.’’ Placemaking involves strategically mixing high-quality
multifamily and commercial buildings with anchor, specialty and neighborhood retail in a high density,
thoughtfully planned and designed public space. Through this process, we are able to drive synergies,
and thus value, across those varied uses and create unique, amenity-rich, walkable neighborhoods that
are desirable and create significant tenant and investor demand. We believe that our Placemaking
approach will drive occupancy and rent growth across our entire portfolio, particularly with respect to
our concentrated and extensive land and building holdings in Crystal City. Crystal City’s attractive
attributes of its urban-infill location with close proximity to downtown Washington, DC, its access to
Metro and other key transportation infrastructure and strong surrounding demographics serve as an
incredible foundation upon which to build the mix of uses and amenities that today’s tenants demand.
We believe that the application of our Placemaking approach will allow us to increase Crystal City’s
attractiveness to potential tenants and create significant value for our shareholders. Our investment in
Crystal City will focus on creating a vibrant, 24-hour environment with an active retail heart through
the delivery of additional anchor and small store retail and the introduction of a greater mix of uses,
including new multifamily and the select conversion of office buildings to multifamily. These elements,
combined with thoughtfully planned and curated streetscapes and public spaces, are all critical to the
creation of a dynamic place that will help drive occupancy and rent growth throughout the submarket
over time. Importantly, the broader benefits of this repositioning are achievable without the need to
invest capital in the repositioning of each asset in the submarket. Many similar opportunities exist
2
elsewhere in our portfolio on a smaller scale, and we expect these to drive significant value over time
as well.
Our high-quality portfolio with significant embedded growth potential, well-capitalized balance
sheet, scale and highly experienced and talented local management team combine to make JBG
SMITH an attractive public company investment vehicle focused on the Washington, DC metropolitan
area. In addition, we expect our assets under construction and unrivaled near-term and future
development pipelines, which have a meaningful multifamily focus, will provide significant additional
potential growth and value creation opportunities that meet market demand over time.
Our Portfolio
We own and operate a portfolio of high-quality office and multifamily assets, many of which
are amenitized with ancillary retail. Our portfolio reflects our longstanding strategy of concentrating in
downtown Washington, DC and other leading urban-infill submarkets with proximity to downtown
Washington, DC that have high barriers to entry and key urban amenities, including being within
walking distance of the Metro. Over 98% of our operating assets are Metro-served, based on our share
of rentable square feet as of March 31, 2017. Our concentrated holdings and leading market share in
our targeted primary submarkets allow us to realize meaningful economies of scale and to enhance our
neighborhoods through Placemaking, thereby benefiting our overall holdings within these targeted
submarkets. Our fully-integrated platform has demonstrated capability in managing every aspect of real
estate ownership, including investment, development, construction management, finance, asset
management, property management and leasing. We expect that JBG SMITH will achieve significant
growth from the realization of embedded contractual rent growth, the lease-up of our operating assets,
the delivery and lease-up of our assets under construction and the development of our unrivaled
near-term and future development pipelines aggregating over 23.4 million square feet (19.3 million
square feet at our share). While our operating portfolio is currently approximately 70% office and 26%
multifamily based on total square footage, a significant portion of our near-term and future
development pipelines is focused on multifamily assets; delivering these assets to the market will result
over time in our portfolio becoming more balanced between office and multifamily.
As of March 31, 2017, our operating portfolio consisted of 68 operating assets aggregating
approximately 20.2 million square feet (16.1 million square feet at our share), comprised of 50 office
assets aggregating approximately 14.1 million square feet (12.1 million square feet at our share), 14
multifamily assets aggregating 6,016 units (4,232 units at our share) and four other assets aggregating
approximately 765,000 square feet (348,000 square feet at our share).
Our assets are located primarily within attractive submarkets in the District of Columbia and in
the most desirable, infill, Metro-served submarkets outside of Washington, DC. These include the
Rosslyn-Ballston Corridor, Crystal City, Pentagon City and Reston in Virginia. In Maryland, the
majority of our assets are concentrated in Bethesda, Silver Spring and the Rockville Pike Corridor. Our
current and target submarkets generally share the following key attributes that make them highly
desirable and create significant tenant and investor demand:
• They are densely populated, urban-infill submarkets;
• They are well-established or emerging growth submarkets;
• They are Metro-served;
• They exhibit high barriers to new development due to limited available land and/or
entitlement constraints; and
• They have a high degree of walkability and feature strong clusters of retail and other
amenities.
3
Our Operating Portfolio
Our operating office portfolio is highly concentrated in five primary, Metro-served, urban-infill
submarkets: (i) District of Columbia, (ii) Crystal City and Pentagon City, (iii) the Rosslyn-Ballston
Corridor, (iv) Reston and (v) Bethesda. In addition to our ownership of over 4.2 million square feet
(2.8 million square feet at our share) across 14 assets in the District of Columbia, we have a leading
market position in Crystal City and Pentagon City, with ownership of over 6.4 million square feet in 20
wholly owned assets in an irreplaceable location along the Potomac River adjacent to Washington, DC
and the Ronald Reagan National Airport. We also have ownership of approximately 1.2 million square
feet (1.0 million square feet at our share) in four assets in the Rosslyn-Ballston Corridor, over
1.3 million square feet in six wholly owned assets in Reston, over 500,000 square feet in three wholly
owned assets in Bethesda, approximately 201,000 square feet (36,000 square feet at our share) in two
assets in the Rockville Pike Corridor and over 246,000 square feet (24,600 square feet at our share) in
one asset in Alexandria (Eisenhower Avenue). Our high-quality, diversified office tenant base spans
both the public and private sectors, reflecting the continued evolution and diversification of the
Washington, DC economy. Our tenants include many agencies and departments of the U.S. federal
government, which collectively comprise our largest tenant, with 80 leases generating approximately
22.3% of our share of annualized rent from our office and retail leases as of March 31, 2017. No other
tenant represents more than 3.4% of our share of annualized rent from our office and retail leases. In
addition, other major office tenants include Arlington County; non-profit organizations such as Family
Health International and the Public Broadcasting Service (‘‘PBS’’); leading private-sector companies
such as Lockheed Martin Corporation, General Electric, Booz Allen Hamilton, Accenture LLP, Abbott
Laboratories, Raytheon Company, and Noblis Inc.; financial institutions such as Citigroup and Wells
Fargo; and well-respected law firms and other professional services companies such as Baker Botts LLP,
Sidley Austin LLP, Cooley LLP and Deloitte LLP.
Our operating multifamily portfolio consists of 14 multifamily assets comprising 6,016 units
(4,232 units at our share) and is located in some of the most vibrant neighborhoods of the District of
Columbia; Crystal City and Pentagon City, the Rosslyn-Ballston Corridor and Reston in Virginia; and
Bethesda, Silver Spring and the Rockville Pike Corridor in Maryland. Similar to our office buildings,
our multifamily assets are located in the most desirable locations, with 99% within walking distance of
the Metro, restaurants, entertainment and other key urban amenities. We believe our multifamily
portfolio includes some of the highest quality multifamily assets in the Washington, DC metropolitan
area. These assets include (i) The Bartlett, a recently developed 699-unit luxury property in Pentagon
City with a Whole Foods Market as its ground floor retail; (ii) Atlantic Plumbing, a 310-unit class-A
property in the heart of the vibrant U Street/Shaw neighborhood in Washington, DC; and
(iii) WestEnd25, a 283-unit luxury property situated in the coveted West End of Washington, DC.
Over 1.3 million operating retail square feet are embedded within our office and multifamily
assets—a key component of our Placemaking strategy. Our office and multifamily rental rates generally
reflect a premium relative to rates in their broader submarkets that we believe is attributable to the
presence of thoughtfully curated retail amenities, and we strive to incorporate, where possible,
high-quality, value-creating retail space into our office and multifamily assets. Our high-quality,
diversified retail tenant base includes anchor, specialty and neighborhood retail shops that create
thoughtfully planned and designed public space. Our retail tenants include Whole Foods, Trader Joe’s,
Starbucks, Dean & DeLuca as well as boutique tenants including Warby Parker, Landmark Theatre and
Bonobos.
In addition, we own interests in three standalone retail assets and one standalone hotel, the
345-room Crystal City Marriott.
4
Our Assets Under Construction and Near-Term and Future Development Pipelines
In addition to our operating portfolio, as of March 31, 2017, we owned:
• eight assets under construction totaling over 784,000 square feet (675,000 square feet at our
share) of office and 1,012 units (985 units at our share) of multifamily with an estimated
incremental investment as of March 31, 2017 of approximately $563.5 million ($517.5 million
at our share);
• a near-term development pipeline consisting of five assets totaling approximately 559,000
square feet of highly-efficient wholly owned office, 755 multifamily units (464 units at our
share) and over 65,000 square feet (6,500 square feet at our share) of retail in our other
asset category, located primarily in the District of Columbia and adjacent close-in
submarkets; and
• a future development pipeline comprised of 44 future development assets with an estimated
potential development density of over 22.1 million square feet (18.3 million square feet at
our share).
With respect to the five assets in our near-term development pipeline, the entitlement process
has been substantially completed and these projects, which will capitalize on the demand for
high-quality multifamily assets and highly-efficient, high-quality office assets, are in position for
construction to commence, and since March 31, 2017, construction has commenced on three of these
assets. See ‘‘Business and Properties—Recent Developments Since March 31, 2017’’. In general, given
current market expectations, we estimate that we will commence construction on near-term
development multifamily assets within the 18 months following March 31, 2017, while commencement
of construction on near-term development office assets will more likely depend on either pre-leasing or
attractive submarket supply and demand dynamics. Our near-term and future development pipelines
have the potential to roughly double the size of our portfolio by square footage and to further enhance
the quality of our portfolio. To take advantage of this opportunity, we plan to be an active developer,
particularly of multifamily assets, and intend to manage the delivery of our development growth
pipeline to meet market demand while prudently managing our long-term leverage levels and balance
sheet.
Our Third-Party Asset Management and Real Estate Services Business
In addition to our portfolio, we have a third-party asset management and real estate services
business that represents the combination of Vornado / Charles E. Smith’s and JBG’s management
platforms that provides fee-based real estate services to nine JBG Funds, other JBG-affiliated entities,
joint ventures and third parties with whom we have long-standing relationships.
Our Management Team and Platform
We will be self-managed and led by JBG’s executive management team, and will combine the
best talent from each of Vornado / Charles E. Smith and JBG, providing us with one of the most
seasoned and experienced management teams in the Washington, DC market. Executive management
of JBG SMITH will include W. Matthew Kelly (Chief Executive Officer), Robert Stewart (Executive
Vice Chairman), David Paul (President and Chief Operating Officer), James Iker (Chief Investment
Officer), Brian Coulter (Co-Chief Development Officer) and Kevin (‘‘Kai’’) Reynolds (Co-Chief
Development Officer), who are all current managing partners or partners and have an average tenure
of 18 years at JBG. These executives manage the JBG business today and have a longstanding track
record in the Washington, DC market, in which JBG is considered the leading local sharpshooter. The
senior management team of JBG SMITH will also benefit from the experience and expertise of
Stephen W. Theriot (Chief Financial Officer), who served as Vornado’s Chief Financial Officer from
5
June 2013 to February 2017, and Patrick J. Tyrrell (Chief Administrative Officer), who is currently
Vornado’s Chief Operating Officer of its Washington, DC division. Our commercial leasing team will be
led by David Ritchey (Executive Vice President) and will be supported by Jim Creedon, a 25-year
veteran with Vornado / Charles E. Smith, and a team of 14 professionals from both JBG and Vornado /
Charles E. Smith. Our board of trustees will consist of a majority of independent trustees. In addition
to the appointment of seven independent trustees, Steven Roth, Vornado’s Chairman and CEO, will be
Chairman of the board of trustees of JBG SMITH and Mitchell Schear, Vornado’s President of the
Washington, DC division, will also serve as a trustee of JBG SMITH. Michael Glosserman, W. Matthew
Kelly and Robert Stewart, all current managing partners of JBG, will also serve as trustees of JBG
SMITH.
The JBG management team is a proven steward of investor capital and has a long track record
of creating value for investors through numerous economic cycles. JBG has an over 50-year history in
the Washington, DC metropolitan area market. In 1999, JBG created its first discretionary investment
fund. As of March 31, 2017, JBG has raised approximately $3.7 billion of discretionary fund investment
capital for nine real estate investment funds, and has invested in over 235 assets on behalf of these
JBG Funds. As of May 31, 2017, the JBG Funds’ investments are projected to generate a realized and
unrealized aggregate gross leveraged IRR and equity multiple of 23.4% and 1.8x, respectively, while
typically employing leverage of approximately 60% of gross asset value. Gross leveraged IRR represents
the leveraged internal rate of return based on (i) equity invested or projected to be invested and
(ii) the total projected distributions from investments (including the return of equity invested), received
by the applicable fund, less all sales costs, debt service and all other property level fees where
applicable, but before deduction of carried interests and asset management fees where applicable. For
investments that are subject to a joint venture, gross leveraged IRR reflects the impact of any promote
that was either paid or earned or projected to be paid or earned. Equity multiple represents (i) the
sum of (a) the total contributions and distributions from investments received or projected to be
received by the applicable fund, calculated on a quarterly basis, plus (b) the equity invested or
projected to be invested divided by (ii) the equity invested or projected to be invested. (These gross
leveraged IRRs and equity multiples are not necessarily indicative of the future performance of JBG
SMITH, any asset in our portfolio or an investment in our common shares. These metrics are based in
part on investments that the JBG Funds sold prior to the combination and thus are not part of our
portfolio, and do not reflect the gross leveraged IRRs and equity multiples achieved by Vornado’s
Washington, DC business during the same time period. There is no assurance that our management will
be able to replicate the performance achieved by the JBG Funds with respect to these investments,
particularly given our use of lower leverage and a longer-term holding period.) Following the closing of
the combination, we do not intend to raise any future investment funds, and current funds will be
managed and liquidated over time. We expect to continue to earn fees from these funds as they are
wound down, as well as from any joint venture arrangements currently in place and any new joint
venture arrangements entered into in the future. The JBG management team will continue to own
direct equity co-investment and promote interests in the JBG Funds that are not being contributed to
JBG SMITH. As the JBG Funds are wound down over time, these economic interests will decrease and
be eliminated.
Our broad transactional skill sets, multi-asset class experience, deep organizational and
financial expertise, and a long and successful track record built over 50 years, allow us to uniquely
source and execute on a broad array of opportunities. Our management platform is vertically integrated
across functions, including investment, development, construction management, finance, asset
management, property management and leasing, which allows us to efficiently execute on our business
strategy. Our platform is also horizontally integrated across real estate asset classes, focusing primarily
on office, multifamily and retail, which affords us the flexibility to respond to changing market
conditions by adjusting our business plans to deliver the type of asset that will meet current market
demand. As a result, we are able to execute large-scale mixed-use projects without the need to partner
6
with other operators or developers. In addition, we have developed an intimate knowledge of the
Washington, DC metropolitan area and a detailed understanding of the key submarkets on a
block-by-block basis. We believe that our in-depth market knowledge and extensive network of
longstanding relationships with real estate owners, developers, tenants, brokers, lenders, general
contractors, municipalities, local community organizations and other market participants provide us
with a sustainable competitive advantage.
We use a disciplined, research-based approach to identify value creating development,
redevelopment and acquisition opportunities in existing and new high-growth submarkets.
Our Balance Sheet
We will have a well-capitalized balance sheet and access to a broad range of funding sources
which we believe will allow us to execute our business plan. On a pro forma basis, JBG SMITH has
approximately $2.2 billion aggregate principal amount of consolidated debt outstanding ($2.2 billion at
our share) and our unconsolidated joint ventures had over $1.1 billion aggregate principal amount of
debt outstanding ($380 million at our share), resulting in a total of approximately $2.6 billion aggregate
principal amount of debt outstanding at our share. We will have a well-staggered debt maturity
schedule over the next five years, particularly considering our existing as-of-right extension options. We
will have significant liquidity upon the completion of the separation and combination with $511 million
of cash on a consolidated basis and $17 million of cash at our share of unconsolidated joint ventures,
and we are arranging a $1.4 billion credit facility under which we expect to have significant borrowing
capacity.
REIT Status
We plan to elect to be treated as a REIT in connection with the filing of our federal income
tax return for the taxable year that includes the distribution of our common shares by Vornado, and we
intend to maintain this status in future periods.
Summary Table—Total Portfolio as of March 31, 2017
Number of
Assets
Wholly Owned
Operating . . . . . . . . . . . . . . . . . .
Under Construction . . . . . . . . . . .
Near-Term Development(3) . . . . . . .
Future Development(4) . . . . . . . . .
Total Wholly Owned . . . . . . . . . . . . .
Joint Ventures (at 100 Percent Share)
Operating . . . . . . . . . . . . . . . . . .
Under Construction . . . . . . . . . . .
Near-Term Development(3) . . . . . . .
Future Development(4) . . . . . . . . .
Total Joint Ventures . . . . . . . . . . . . .
Total Portfolio . . . . . . . . . . . . . . . . .
Rentable
Square Feet
Number of
Units(1)
Estimated
Potential
Development
Density(2)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
49
5
2
26
82
14,730,510
1,022,099
558,616
—
16,311,225
3,908
547
0
577
5,032
—
—
—
17,074,500
17,074,500
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
19
3
3
18
43
125
5,435,656
602,431
759,226
—
6,797,313
23,108,538
2,108
465
755
—
3,328
8,360
—
—
—
5,090,500
5,040,500
22,115,000
Total Portfolio (at JBG SMITH Share) . . . . . . . . . . .
125
18,555,989
6,258
18,346,506
Note: Table shown at 100 percent share except where noted as JBG SMITH share. See the ‘‘Presentation of Information’’ on
page ii for disclosure regarding at-share metrics.
7
(1)
For assets under construction and near-term development assets, represents estimated number of units based on
current design plans.
(2)
Includes estimated potential office, multifamily and retail development density.
(3)
Refers to assets that have substantially completed the entitlement process and on which we intend to commence
construction within the 18 months following March 31, 2017, subject to market conditions.
(4)
Refers to assets that are development opportunities on which we do not intend to commence construction within
18 months of March 31, 2017.
Summary Table—In-Service Operating Assets as of March 31, 2017
Number of
Units
Percent
Leased(1)
Annualized
Rent(2)
($000s)
Annualized Rent
Per Square Foot/
Monthly Rent
Per Unit(3)
Number of
Assets
Rentable
Square Feet
Office . . . . . . . . . . . . . . . . .
Office—Recently Delivered(4)
49
1
14,063,749
13,633
—
—
87.1% $532,422
100.0%
1,099
$45.12
—
Office—Total . . . . . . . . . . . .
50
14,077,382
—
87.1% $533,521
$45.22
Multifamily . . . . . . . . . . . . .
Multifamily—Recently
Delivered(4) . . . . . . . . . . . .
13
4,704,866
5,317
94.9% $122,388
$1,973
1
619,372
699
Multifamily—Total . . . . . . . .
14
5,324,238
Other(5) . . . . . . . . . . . . . . . .
4
Total/Weighted Average . . . . .
Total (at JBG SMITH Share)
87.1%
18,748
2,617
6,016
94.0% $141,136
$2,040
764,546
—
93.6% $ 14,833
$31.89
68
20,166,166
6,016
89.2%
$689,490
68
16,083,997
4,232
87.4%
$553,425
Note: Table shown at 100 percent share except where noted as JBG SMITH share. See the ‘‘Presentation of Information’’ on
page ii for disclosure regarding at-share metrics.
(1)
Based on leases signed as of March 31, 2017, and is calculated as total rentable square feet less rentable square feet
available for lease divided by total rentable square feet.
(2)
Represents (i) for office and other assets, or the retail component of a mixed-use asset, in-place monthly base rent
before free rent, plus tenant reimbursements as of March 31, 2017, multiplied by 12, with triple net leases converted to
a gross basis by adding estimated tenant reimbursements to monthly base rent, and (ii) for multifamily assets, or the
multifamily component of a mixed-use asset, in-place monthly base rent before free rent as of March 31, 2017,
multiplied by 12. Annualized rent excludes rent from signed but not yet commenced leases.
(3)
For office assets, represents annualized office rent divided by occupied office square feet. For multifamily assets,
represents monthly multifamily rent divided by occupied units. For other assets, represents annualized rent divided by
occupied square feet. Occupied square footage may differ from leased square footage because leased square footage
includes leases that have been signed for space within the asset, but that have not yet commenced.
(4)
Refers to assets that have been delivered within the 12 months ended March 31, 2017.
(5)
Segment includes three standalone retail assets and the Crystal City Marriott, a standalone hotel totaling 266,000
square feet and 345 rooms. The Crystal City Marriott is excluded from percent leased, annualized rent, and annualized
rent per square foot metrics.
8
Summary Table—Assets Under Construction as of March 31, 2017
Estimated
Rentable
Square Feet
Number of
Assets
Estimated
Number
of Units
Percent
Pre-Leased
Assets Under Construction
Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
5
784,279
840,251
—
1,012
63.3%
N/A
Total/Weighted Average . . . . . . . . . . . . . . . . . . . . . . . . .
8
1,624,530
1,012
63.3%
Total (at JBG SMITH Share) . . . . . . . . . . . . . . . . . . . . .
8
1,492,928
985
64.3%
Note: Table shown at 100 percent share except where noted as JBG SMITH share. See the ‘‘Presentation of Information’’ on
page ii for disclosure regarding at-share metrics.
Summary Table—Near-Term and Future Development Assets as of March 31, 2017
Number of
Assets
Estimated
Rentable Square
Feet
Estimated
Number of
Units
Estimated
Potential
Development
Density(1)
Near-Term and Future Development Assets
Near-Term Development Assets(2) . . . . . . . . . . . .
Future Development Assets(3) . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
44
49
1,317,842
—
1,317,842
755
—
755
—
22,115,000
22,115,000
Total (at JBG SMITH Share) . . . . . . . . . . . . . . . .
49
979,064
464
18,346,506
Note: Table shown at 100 percent share except where noted as JBG SMITH share. See the ‘‘Presentation of Information’’ on
page ii for disclosure regarding at-share metrics.
(1)
Includes estimated potential office, multifamily and retail development density.
(2)
Refers to assets that have substantially completed the entitlement process and on which we intend to commence
construction within the 18 months following March 31, 2017, subject to market conditions.
(3)
Refers to assets that are development opportunities on which we do not intend to commence construction within
18 months of March 31, 2017.
Industry Overview and Market Opportunity
Washington, DC is one of the nation’s premier Gateway Markets (which consist of Washington,
DC, New York, San Francisco, Los Angeles and Boston), an international hub of economic activity, and
the capital of the United States. The Washington, DC metropolitan area is home to an affluent and
well-educated population, featuring the highest median household income and educational attainment
of any Gateway Market in the United States. Regional growth in both traditional and ‘‘new’’ economies
has contributed to positive net migration into the Washington, DC metropolitan area since 2009. The
region’s strong growth attributes are supported by its younger residents, with a higher percentage of the
population between the ages of 25 and 34 than the overall average for Gateway Markets. In addition,
the Washington, DC metropolitan area is served by the second-largest rapid transit system in the
United States, and the region is routinely ranked as one of the most walkable metropolitan areas in the
nation.
Over the past 25 years, the Washington, DC metropolitan area real estate market has
outperformed other Gateway Markets. During this period, the region’s market cycle has generally
trended independently of other markets, exhibiting meaningful stability compared to other Gateway
Markets. Recently, relative to other Gateway Markets, the region was uniquely impacted by the
headwinds imposed by sequestration and federal budget challenges. After a more recent return to
9
stability and historical job growth levels, the Washington, DC metropolitan area is now outpacing
economic and employment growth nationally and, as a result, JLL believes the real estate market over
the next 24 to 36 months is positioned for significant occupancy and rent growth, with the Washington,
DC metropolitan area real estate market at a much earlier point in its recovery compared to other
Gateway Markets.
The Washington, DC metropolitan area office recovery is, we believe, in its early stages, and
based on renewed private sector demand, political alignment which historically drives above-average
growth and a supply constrained environment, the Washington, DC metropolitan area is expected to
have several years of economic and real estate advancement ahead. With the regional economy and
office market coming off the bottom, the region’s real estate industry is uniquely positioned to
experience a stronger recovery over the next 24 to 36 months compared to other Gateway Markets.
We own assets in what we believe are the most attractive submarkets within the Washington,
DC metropolitan area. Our portfolio is strategically concentrated, with over 98% of our operating
assets, based on our share of rentable square feet as of March 31, 2017, being Metro-served. As of
March 31, 2017, all of our assets under construction and substantially all of our near-term development
assets were Metro-served. According to JLL, for the five year period ended March 31, 2017, 76% of
office leasing activity in the Washington, DC metropolitan area (transactions larger than 20,000 square
feet) has been within 0.5 miles of an existing or planned Metro station, although only 63% of the
overall market is Metro-served, demonstrating that Metro accessibility remains a critical factor in site
selection and is a key driver of employee recruitment and retention. Resulting rent premiums in Metroserved submarkets average 69% for office and 32% for multifamily property types.
Our Competitive Strengths
We believe that our extensive real estate operating and investment platform and our
high-quality, urban-infill, Metro-served portfolio provide us with certain competitive advantages
outlined below. We believe these competitive advantages will allow us to deliver significant income
growth through in-place embedded contractual revenue growth, lease-up of our operating assets,
delivery and lease-up of our assets under construction and near-term and future development and
acquisition opportunities.
Market-Leading, Largest Publicly Traded Real Estate Company Focused on the Washington,
DC Metropolitan Area. JBG SMITH represents the combination of Vornado / Charles E. Smith and
The JBG Companies, two of the largest, most noteworthy, best-in-class Washington, DC focused real
estate franchises, each with an over 50-year history of operations in the Washington, DC metropolitan
area. We have assembled the largest portfolio, by rentable square feet, of high-quality commercial real
estate assets in the Washington, DC metropolitan area of any publicly traded real estate company. Our
portfolio is comprised primarily of office and multifamily assets, many of which are amenitized with a
complementary retail component. We operate a platform that is both vertically integrated across
functions, including investment, development, construction management, finance, asset management,
property management and leasing, and horizontally integrated across real estate asset classes, focusing
primarily on office, multifamily and retail. Our integrated structure, as well as the size and scope of our
platform, enables us to identify value-creation opportunities and realize significant operating
efficiencies. Our organization is comprised of over 1,100 employees, including over 400 corporate
employees in investment, development, construction management, finance, asset management, property
management, leasing and other supporting functions. Through our complementary in-house disciplines,
we seek to enhance asset values through proactive asset and property management.
High-Quality Assets in Most Attractive Submarkets. Our portfolio of high-quality operating
assets is primarily located within what we believe are the most attractive Metro-served, urban-infill
submarkets of the Washington, DC metropolitan area, one of the highest barrier-to-entry markets in
the United States. Our general strategy is to invest in assets that we anticipate, by virtue of location,
physical quality, amenities or other specific features, will possess a sustainable ability to outperform the
market, maintain high occupancy levels through all market cycles, attract high-quality tenants and
appeal to a broad range of buyers if offered for sale.
10
• High-Quality Assets. Our portfolio is comprised of high-quality office and multifamily assets,
many of which have been recently constructed or renovated and are amenitized with ancillary
retail. Our operating portfolio was over 89% leased (87% at our share) across all of our
asset classes as of March 31, 2017. We believe this provides built-in growth potential as we
lease up to a stabilized occupancy level. Moreover, we believe that we have a strong,
creditworthy tenant base, with agencies and departments of the U.S. federal government
representing approximately 22.3% of our share of annualized rent from our office and retail
leases as of March 31, 2017. No other tenant accounted for more than 3.4% of our share of
annualized rent from our office and retail leases as of March 31, 2017. The majority of our
non-GSA office and retail leases contain contractual rent escalators. In addition, we benefit
from high-quality long-term leases, with a weighted average lease term (including leases
signed but not yet commenced) of 6.3 years as of March 31, 2017.
Most Attractive Submarkets. We have invested in what we believe are the most attractive
submarkets within the Washington, DC metropolitan area. These submarkets are in high barrier
locations, are Metro-served, have a high degree of walkability and feature strong clusters of nearby
amenities. Based on our share of rentable square feet as of March 31, 2017, over 98% of our assets are
Metro-served. This concentration of assets positions us well to capitalize on improving real estate
market fundamentals, with 76% of Washington, DC metropolitan area office leasing activity for the five
year period ended March 31, 2017 within 0.5 miles of an existing or planned Metro station, according
to JLL, although only 63% of the overall market is Metro-served. Moreover, the submarkets in which
we operate (excluding Crystal City/Pentagon City) have historically outperformed other Washington,
DC metropolitan area submarkets (see the charts below). While Crystal City/Pentagon City’s metrics
were not as compelling over the same time period (largely due to BRAC (Base Realignment and
Closure) and sequestration), we believe that this submarket is positioned for recovery because it shares
many of the characteristics of other outperforming JBG SMITH submarkets such as an urban street
grid, proximity to major demand drivers, and access to all forms of transportation. We believe that once
we have been able to apply our Placemaking strategy, Crystal City/Pentagon City will perform in line
with our other submarkets.
• In both office and multifamily market metrics, JBG SMITH’s submarkets (excluding
Crystal City/Pentagon City) have outperformed non-JBG SMITH submarkets.
In the office sector, as of March 31, 2017, JBG SMITH’s submarkets (excluding Crystal City/
Pentagon City):
• posted current asking rents above the market average, with Crystal City/Pentagon City also
posting a premium to market;
• had seen rent growth over the preceding 10 years far in excess of non-JBG SMITH
submarkets, while Crystal City/Pentagon City also modestly outperformed; and
• showed significantly lower historical vacancy rates over the preceding 10 years than the
broader market.
11
Office asking rents relative to market average
10-year office asking rent growth comparison
Premium/discount relative to market average as of Q1 2017
Change in average asking rents
30%
25%
20%
20%
26.7%
10%
15%
23.4%
0%
-4.5%
10%
-10%
-21.8%
5%
-20%
7.1%
2.8%
-30%
JBG Submarkets
(excluding Crystal City/
Pentagon City)
0%
Crystal City/Pentagon City
Non-JBG Submarkets
JBG Submarkets
(excluding Crystal City/
Pentagon City)
6JUN201719120295
Source: JLL Research
Crystal City/Pentagon City
Non-JBG Submarkets
6JUN201719114713
Source: JLL Research
10-year office average vacancy comparison
10-Year Historical Vacancy Average
20%
18%
16%
14%
12%
10%
17.1%
17.7%
8%
6%
12.8%
4%
2%
0%
JBG Submarkets
(excluding Crystal City/
Pentagon City)
Crystal City/Pentagon City
Non-JBG Submarkets
6JUN201719114837
Source: JLL Research
In the multifamily sector, as of March 31, 2017, JBG SMITH’s submarkets (excluding Crystal
City/Pentagon City):
• posted asking rents that commanded a significant premium to the market average compared
to a discount in non-JBG SMITH submarkets;
• had seen rent growth over the preceding 10 years on par with Crystal City/Pentagon City and
above the non-JBG SMITH submarkets, even with inventory growth far above that seen in
non-JBG SMITH submarkets or in Crystal City/Pentagon City;
• absorbed new units over the preceding 10 years at a far greater rate than the non-JBG
SMITH submarkets. Despite a slower pace of absorption over the 10 year time period, the
Crystal City/Pentagon City market has seen a recent uptick in absorption through March 31,
2017 posting more units absorbed as a percentage of inventory than JBG SMITH or
non-JBG SMITH submarkets; and
12
• saw outsized inventory growth that helped to drive strong absorption performance.
Multifamily asking rents relative to market
average
10-year multifamily asking rent growth comparison
Premium/discount relative to market average of $2.42/s.f. for Class A&B, High/Mid rise as of Q1 2017
Change in average asking rents (per square foot; mid/high-rise assets)
20%
40%
15%
35%
10%
30%
14.5%
5%
25%
0%
20%
-0.4%
37.8%
33.9%
-5%
-13.6%
29.8%
15%
-10%
10%
-15%
5%
-20%
JBG Submarkets
(excluding Crystal City/
Pentagon City)
Crystal City/Pentagon City
Non-JBG Submarkets
0%
6JUN201719412373
JBG Submarkets
(excluding Crystal City/
Pentagon City)
Source: JLL Research
Crystal City/Pentagon City
Non-JBG Submarkets
6JUN201719114960
Source: JLL Research
10-year multifamily net absorption comparison
Net change in occupied units over the noted period through March 31, 2017
90%
80%
70%
60%
50%
40%
76.7%
30%
46.7%
20%
24.2%
10%
0%
JBG Submarkets
(excluding Crystal City/
Pentagon City)
Crystal City/Pentagon City
Non-JBG Submarkets
6JUN201719412497
Source: JLL Research
Concentrated Submarket Ownership. Our assets are located primarily within attractive
submarkets in the District of Columbia and in the most desirable, infill, Metro-served submarkets
outside of Washington, DC. These include the Rosslyn-Ballston Corridor, Crystal City, Pentagon City
and Reston in Virginia. In Maryland, the majority of our assets are concentrated in Bethesda, Silver
Spring and the Rockville Pike Corridor. Through concentrating our investments in these key
submarkets, we believe we achieve improved asset performance across all of our assets within a
submarket as we apply our development, redevelopment and Placemaking skills that help enhance the
overall attractiveness of the market to tenants and investors. In addition, this concentrated ownership
allows us to create value in our operating and development portfolio by recognizing synergies in
operating expenses in our portfolio, managing submarket supply through our near-term and future
development pipelines, and fostering strong relationships with local jurisdictions that are key to
navigating the entitlement process. Finally, our concentrated ownership provides us with greater access
to new acquisition and development opportunities and the ability to unlock value not available to
competitors lacking the same submarket scale.
13
Strong Management Team with Extensive Market Expertise and Interests Aligned with
Shareholders. We will be self-managed and led by JBG’s executive management team, and will
combine the best talent from each of Vornado / Charles E. Smith and JBG, providing us with one of
the most seasoned and experienced management teams in the Washington, DC market. Our multigenerational leadership team has over 50 years of single-market focus in the Washington,
DC metropolitan area. Our team has an intimate knowledge of the Washington, DC area real estate
market and deep local relationships.
Executive management of JBG SMITH will include W. Matthew Kelly (Chief Executive
Officer), Robert Stewart (Executive Vice Chairman), David Paul (President and Chief Operating
Officer), James Iker (Chief Investment Officer), Brian Coulter (Co-Chief Development Officer), and
Kai Reynolds (Co-Chief Development Officer), who are all current managing partners or partners of
JBG and have an average tenure of 18 years. These executives manage the JBG business today and
have a longstanding track record in the Washington, DC market, in which JBG is considered the
leading local sharpshooter. The senior management team of JBG SMITH will also benefit from the
experience and expertise of Stephen W. Theriot (Chief Financial Officer), who served as Chief
Financial Officer of Vornado from June 2013 to February 2017, and Patrick J. Tyrrell (Chief
Administrative Officer), who is currently Vornado’s Chief Operating Officer of its Washington, DC
division. Our commercial leasing team will be led by David Ritchey (Executive Vice President) and will
be supported by Jim Creedon, a 25-year veteran with Vornado / Charles E. Smith, and a team of 14
professionals from both JBG and Vornado / Charles E. Smith. Our board of trustees will consist of a
majority of independent trustees. Steven Roth, Vornado’s Chairman and CEO, will be Chairman of the
board of trustees of JBG SMITH and Mitchell Schear, Vornado’s President of the Washington, DC
division, will also serve as a trustee of JBG SMITH. Michael Glosserman, W. Matthew Kelly and
Robert Stewart, all current managing partners of JBG, will also serve as trustees of JBG SMITH.
JBG SMITH’s leadership will be meaningfully aligned with the interests of shareholders, with
the focus on maximizing the value of JBG SMITH common shares. Our management team (excluding
Michael Glosserman, who will be a member of our board of trustees) is expected to own approximately
5% of the economic interests in JBG SMITH, which represents the majority of their collective net
worth, and our management team and board of trustees are expected to beneficially own or represent
approximately 13% of the economic interests in JBG SMITH. The common limited partnership units
that the JBG management team will receive in connection with the contribution of the JBG third-party
asset management and real estate services business will be subject to certain vesting and transfer
restrictions, with 50% vesting upon the closing of the combination and the other 50% vesting in equal
monthly installments beginning on the first day of the 31st month after the combination and ending on
the first day of the 60th month after the combination as long as the individual remains employed by
JBG SMITH. Our management team will also be restricted from redeeming 50% of these units for
JBG SMITH common shares for three years, and from redeeming the other 50% of these units for
JBG SMITH common shares for five years, following the closing of the combination, further aligning
their interests with those of our shareholders, except that up to 10% of an individual’s total units may
be sold, pledged or redeemed for JBG SMITH common shares during this period (subject to the
transfer and redemption restrictions imposed on the units generally by the limited partnership
agreement of JBG SMITH LP, which we refer to as the Partnership Agreement). See ‘‘The Separation
and the Combination—The Combination—The MTA—Consideration’’ for more information about the
vesting and transfer restrictions applicable to this portion of our management team’s equity interests.
See ‘‘The Separation and the Combination—The Combination—Combination Transactions’’ for
information about the interests that certain principals of the JBG Parties who will become our
executive officers will retain in certain JBG Funds following the combination.
Superior Capital Allocation Skills. We have a proven track record of managing our risk, cost
of capital and capital sources by utilizing various capital allocation strategies across investment
14
opportunities and market cycles. We believe that we have the ability and expertise to use not only our
own balance sheet but also to deploy capital from strategic third-party investors through joint ventures.
While we intend to use our own balance sheet as our primary source of capital, we may continue to
partner with such third parties in order to selectively develop mixed-use projects or access other
opportunities. We have longstanding relationships and a long track record of success with many thirdparty capital partners. We intend to selectively partner with such third parties in order to recognize
value and recycle capital from stabilized assets into higher growth opportunities. In addition to multiple
sources of equity capital, we have a variety of relationships with providers of debt capital that we
intend to continue to utilize. We also use various capital allocation strategies to manage risks associated
with our development activities. For example, we often use capital to option, rather than purchase, raw
land positions until the property has received appropriate entitlements, allowing us to pre-lease these
development projects prior to or soon after closing on the land. See ‘‘Business and Properties—Case
Studies’’ beginning on page 154.
The JBG management team is a proven steward of investor capital and has a long track record
of creating value for investors through numerous economic cycles. In 1999, JBG created its first
discretionary investment fund. As of March 31, 2017, JBG has raised approximately $3.7 billion of
discretionary fund investment capital for nine real estate investment funds, and has invested in
over 235 assets on behalf of these JBG Funds. As of May 31, 2017, the JBG Funds’ investments are
projected to generate a realized and unrealized aggregate gross leveraged IRR and equity multiple of
23.4% and 1.8x, respectively, while typically employing leverage of approximately 60% of gross asset
value. (These gross leveraged IRRs and equity multiples are not necessarily indicative of the future
performance of JBG SMITH, any asset in our portfolio or an investment in our common shares. These
metrics are based in part on investments that the JBG Funds sold prior to the combination and thus
are not part of our portfolio, and do not reflect the gross leveraged IRRs and equity multiples achieved
by Vornado’s Washington, DC business during the same time period. There is no assurance that our
management will be able to replicate the performance achieved by the JBG Funds with respect to these
investments, particularly given our use of lower leverage and a longer-term holding period.)
Proven Platform for Value Creation with Investment, Development and Leasing Expertise.
The JBG management team, which will lead JBG SMITH following the combination, has an extensive
track record of investing in, developing and repositioning assets since the first JBG Fund made its first
investment in 2000, spanning multiple market cycles, shifting dynamics and a variety of asset classes:
• Invested in more than 235 assets, including over 19.5 million square feet of office,
14,750 multifamily units, over 4.0 million square feet of retail, 5,700 hotel rooms, 3,200
for-sale multifamily units and townhomes and 25.0 million square feet of estimated potential
future development density.
• Sold more than 100 assets, including over 10.0 million square feet of office, 6,000 multifamily
units, 2.0 million square feet of retail, 2,400 hotel rooms, 2,000 for-sale multifamily units and
townhomes, and 2.0 million square feet of estimated potential future development density.
• Completed more than 80 development projects with an associated cost of over $5.0 billion,
consisting of over 9.5 million square feet of office, 6,700 multifamily units, 1.5 million square
feet of retail, 2,100 hotel rooms and 2,000 for-sale multifamily units and townhomes.
• Redeveloped or repositioned more than 40 assets including over 4.0 million square feet of
office, 1,600 multifamily units, 232,000 square feet of retail and 3,900 hotel rooms.
The JBG SMITH management team has a long history of opportunistic acquisitions and
development as market cycles dictate, although it has not been immune to national and local economic
trends that are unrelated to its management of assets. JBG SMITH has in-house mixed-use expertise
and the retail leasing team to support it. Our dedicated mixed-use operating and development teams
15
have a deep bench of product experts, and our in-house multidisciplinary expertise provides a
competitive advantage in executing large-scale, mixed-use projects. In addition, our experience owning,
operating and managing a range of asset classes gives us a unique capability to identify redevelopment
and adaptive reuse opportunities where we can create value.
In addition, JBG SMITH combines the leasing teams of the JBG management platform and
Vornado / Charles E. Smith, which, collectively, over the three years ended March 31, 2017, averaged
an annual leasing volume of approximately 3.0 million square feet of office space, 11,000 multifamily
leases and approximately 710,000 square feet of retail space across our owned and third-party managed
portfolios.
Our senior management and our 16-person commercial leasing team has deep and
longstanding relationships with key office tenants and broker representatives, which allows us to
effectively lease-up vacant space, secure renewals of existing leases and identify tenants to pre-lease our
development pipeline. We focus on establishing strong relationships with our tenants in order to
understand their long-term business needs, which we believe enhances our ability to retain and expand
quality tenants, facilitates our leasing efforts and maximizes cash flow from our assets. For example,
our long-standing relationship with Corporate Executive Board as their previous landlord helped us to
secure them as an anchor tenant for our approximately 530,000 square foot office tower now under
construction in Rosslyn. Our research team tracks each major tenant lease expiration in the market in
order to anticipate upcoming and future leasing opportunities. We have secured major leases with
multiple GSA tenants over the past decade as a result of our deep understanding of the GSA lease
process and our expertise in meeting the unique requirements of government tenants.
Our senior management and our multifamily leasing and unit-pricing teams have strong
visibility into pricing and leasing-pace dynamics in the markets in which we operate. This allows us to
price, on a unit by unit basis, each of our multifamily assets in order to maximize revenue, lease up
pace, and renewal conversion rate. Our visibility into market dynamics allows us to incorporate into our
multifamily developments the key amenities and unit design features most sought after by tenants.
In addition, our retail leasing team has strong and deep retailer relationships with key anchor
tenants that enhance our Placemaking activities, including Whole Foods Market, Starbucks, Harris
Teeter, Trader Joe’s, and multiple other local, regional and national tenants such as Warby Parker and
Bonobos. The significant size and attractive locations presented by our retail and development portfolio
allow us to maintain and cultivate active relationships with major retailers by offering access to multiple
locations that fit their needs, including the highly attractive but difficult to access emerging growth
markets.
Significant Development Pipeline to Drive Growth. We believe that we control one of the
largest development pipelines of any REIT generally and in the Washington, DC metropolitan area
specifically and the largest pipeline of Metro-served sites based on potential development density. We
believe our near-term and future development pipelines position us for significant future growth. We
own five near-term development assets with an aggregate of over 1.3 million square feet (1.0 million
square feet at our share). In addition, we own or control 44 future development assets with an
estimated potential development density of over 22.1 million square feet (18.3 million square feet at
our share). Similar to our operating assets and assets under construction, our near-term development
and future development assets are located in what we believe are the most attractive submarkets and
will have a meaningful multifamily focus, which we believe will result over time in our portfolio
becoming more balanced between office and multifamily. We believe our large and well-located future
development pipeline provides us an advantage over other market participants who do not already own
development sites within these desirable submarkets and allows JBG SMITH to be well positioned for
future growth.
16
Ability to Create Value through Placemaking. One of our approaches to maximizing the value
of our assets includes utilizing a series of complementary disciplines through a process that we call
‘‘Placemaking.’’ Placemaking involves strategically mixing high-quality multifamily and commercial
buildings with anchor, specialty and neighborhood retail in a high-density, thoughtfully planned and
designed public space. This approach is facilitated by our extensive proprietary research platform and
deep understanding of submarket dynamics.
Through this process, we are able to drive synergies across varied uses and create unique,
amenity-rich, walkable neighborhoods that are desirable and create significant tenant and investor
demand. As part of this process, we build high-quality, distinctive and unique assets that allow the user
experience to extend beyond street level into the building itself. As a result, we believe this approach
leads to stronger office, multifamily and retail demand, leading to higher rents, stronger leasing velocity
and, ultimately, greater asset values. We believe that our approach has helped mitigate the impact of
new competitive supply on our projects and has allowed us to scale our success across neighborhoods.
We plan to use this Placemaking process, among other initiatives, in Crystal City in order to
create value over time. Given Crystal City’s attractive attributes of its urban-infill location with close
proximity to downtown Washington, DC, its access to Metro and other key transportation infrastructure
and strong surrounding demographics, we see an opportunity to position Crystal City as a vibrant,
amenity-rich destination that can offer a range of uses that will drive office, multifamily and retail
demand over time. Moreover, given the critical mass we control in Crystal City, we believe the benefits
of our Placemaking can have a significant impact on the submarket and the value of our assets.
We have successfully developed a number of differentiated projects that achieved top-of-market
rental rates and sales prices, while also attracting a diverse group of sought-after retailers as tenants.
We believe our Placemaking efforts can benefit entire neighborhoods, creating value across a broad
base of assets and accelerating the transformation of submarkets into desirable environments for
tenants and residents. See ‘‘Business and Properties—Case Studies’’ beginning on page 154.
Extensive Market Knowledge and Longstanding Relationships Drive Significant, Unique Deal
Flow. With over 50 years of experience in the Washington, DC metropolitan area, our team possesses
a deep and detailed understanding of the market and the growth dynamics of the region. Since 2000,
JBG has developed or acquired over 19.5 million square feet of office, 14,750 multifamily units,
over 4.0 million square feet of retail, 5,700 hotel rooms, 3,200 for-sale multifamily units and townhomes
and 25.0 million square feet of estimated potential future development density in the region, illustrating
the expertise that we believe serves as a competitive advantage. The legacy of Vornado / Charles E.
Smith is also significant based on its scale, financial strength and development track record, having
developed over time almost the entire contributed portfolio of Vornado / Charles E. Smith assets. Our
in-depth market knowledge and extensive network of longstanding relationships with a broad range of
real estate owners, developers, brokers, lenders, general contractors, municipalities, local community
organizations and other market participants has consistently provided us with access to an ongoing
pipeline of attractive investment opportunities in our core submarkets that may not be available to our
competitors. We believe that our reputation for performance and execution also provides us with a
competitive advantage over other market participants. See ‘‘Business and Properties—Case Studies’’
beginning on page 154.
Disciplined, Research-Based Approach. We augment our deep and seasoned understanding of
the Washington, DC market with a dedicated in-house research function focused on ensuring that our
investment decisions are based on current and forecasted market fundamentals and trends in an effort
to identify opportunities and mitigate risks. We regularly track changes in the market supply pipeline,
construction costs, net absorption, vacancy rates, and rental rate growth in addition to demographic
trends, job and population growth patterns, and other leading indicators to determine shifting trends in
demand. We synthesize that data to identify value creating development, redevelopment and acquisition
17
opportunities in existing and new high-growth submarkets. For example, the design, amenity packages,
target unit mix, and other features of our multifamily development projects are influenced by a detailed
research process. This includes surveys of existing and proposed competitive projects, tenant focus
groups, and analysis of trends in tenant preference, both locally and in other urban markets nationally
and internationally, to identify unmet or underserved segments of demand and maximize rent
generating potential. Retail and office developments benefit from similar tailored analyses. Before
commencing any new development, we evaluate the supply and demand landscape and other market
fundamentals to determine whether proceeding or pausing is the right course of action.
Well-Capitalized Balance Sheet to Support Growth. We will have a well-capitalized balance
sheet and access to a broad range of funding sources which we believe will allow us to execute our
business plan. On a pro forma basis, JBG SMITH has approximately $2.2 billion aggregate principal
amount of consolidated debt outstanding ($2.2 billion at our share) and our unconsolidated joint
ventures had over $1.1 billion aggregate principal amount of debt outstanding ($380 million at our
share), resulting in a total of approximately $2.6 billion aggregate principal amount of debt outstanding
at our share. We will have a well-staggered debt maturity schedule over the next five years, particularly
considering our existing as-of-right extension options. We will have significant liquidity upon the
completion of the separation and combination with $511 million of cash on a consolidated basis and
$17 million of cash at our share of unconsolidated joint ventures, and we are arranging a $1.4 billion
credit facility under which we expect to have significant borrowing capacity.
Successful Third-Party Asset Management and Real Estate Services Business. Since 1999,
JBG has served as the general partner and managing member of nine real estate investment funds for
institutional investors and high net worth individuals with approximately $3.7 billion of discretionary
fund investment capital and has invested in more than 235 assets on behalf of the JBG Funds. The
JBG third-party asset management and real estate services platform provides fee-based real estate
services to the JBG Funds and other JBG-affiliated entities as well as joint venture partners and thirdparty clients. Although a significant portion of the assets and interests in assets owned by certain of the
JBG Funds were contributed in the combination, the JBG Funds retained certain assets that are not
consistent with our long-term business strategy, which can generally be categorized as (i) condominium
and townhome assets, (ii) hotels, (iii) assets likely to be sold in the near term, whether because they
are under contract for sale, being marketed for sale or likely to be marketed for sale in the near term,
(iv) assets located in markets that will not be core markets for JBG SMITH going forward or that are
non-Metro-served, (v) noncontrolling joint venture interests and (vi) single-tenant leased General
Services Administration assets that are encumbered with long-term, hyper-amortizing bond financing
that is not consistent with the financing strategy of JBG SMITH. With respect to these funds and for
most assets that we hold through joint ventures, we will continue to provide the same asset
management, property management, construction management, leasing and other services that we
provided prior to the combination. Following the closing of the combination, we do not intend to raise
any future investment funds, and current funds will be managed and liquidated over time. We expect to
continue to earn fees from these funds as they are wound down, as well as from any joint venture
arrangements currently in place and any new joint venture arrangements entered into in the future.
The JBG management team will continue to own direct equity co-investment and promote interests in
the JBG Funds that are not being contributed to JBG SMITH. As the JBG Funds are wound down
over time, these economic interests will decrease and be eliminated.
In addition, Vornado contributed its third-party asset management and real estate services
business which we believe is complementary to JBG’s. JBG SMITH would have earned approximately
$17.7 million and $78.7 million in combined pro forma revenue from such fees ($17.1 million and
$78.7 million at our share) for the three months ended March 31, 2017 and the year ended
December 31, 2016, respectively.
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We expect that the fees we continue to earn in connection with providing such services will
enhance our overall returns, provide additional scale and efficiency in our operating, development and
acquisition businesses and generate capital which we can use to absorb overhead and other
administrative costs of the platform. This scale provides competitive advantages, including market
knowledge, buying power and operating efficiencies across all product types. We also believe that our
existing relationships arising out of our third-party asset management and real estate services business
will continue to provide potential capital and new investment opportunities. See ‘‘—Our Third-Party
Asset Management and Real Estate Services Business.’’
Business and Growth Strategies
Our primary business objectives are to maximize cash flow and generate strong risk-adjusted
returns for our shareholders. We intend to pursue these objectives through the following business and
growth strategies:
Focus on High-Quality Mixed-Use Assets in Metro-Served Submarkets in the Washington,
DC Metropolitan Area. We intend to continue our longstanding strategy of owning and operating
assets within urban-infill, Metro-served submarkets in the Washington, DC metropolitan area with high
barriers to entry and key urban amenities, including being within walking distance of the Metro. These
submarkets, which include the District of Columbia; Crystal City and Pentagon City, the RosslynBallston Corridor, Reston and Alexandria in Virginia; and Bethesda, Silver Spring and the Rockville
Pike Corridor in Maryland, generally feature compelling economic and demographic attributes, as well
as a premier transportation infrastructure that caters to the preferences of our office, multifamily and
retail tenants. We believe these positive attributes will allow our assets located in these submarkets to
outperform the Washington, DC metropolitan area as a whole.
Realize Contractual Embedded Growth. We believe there are substantial near-term growth
opportunities embedded in our existing operating portfolio, many of which are contractual in nature,
including the burn-off of free rent, contractual rent escalators in our non-GSA office and retail leases
based on increases in CPI or a fixed percentage, and signed but not yet commenced leases. For the
three months ended March 31, 2017, we granted free rent totaling approximately $14.8 million
($12.6 million at our share). As of March 31, 2017, we had 35 signed but not yet commenced leases
totaling over $58.1 million ($43.1 million at our share) of annualized rent, 30 of which are estimated to
commence by March 31, 2018 totaling $37.8 million of annualized rent ($32.9 million at our share).
Drive Incremental Growth Through Lease-up of Our Assets. We believe that we are
well-positioned to achieve significant additional internal growth through lease-up of our current vacant
space and our recently developed assets, given our leasing capabilities and the current strong tenant
demand for high-quality space in our submarkets. For example, as of March 31, 2017 we had
12 operating office assets, totaling over 3.4 million square feet, which were on average 74.0% leased
resulting in over 883,000 square feet available for lease. We also had one multifamily assets that was
delivered during the preceding 12 months, with 699 units, which was 86.4% leased, resulting in
95 multifamily units available for lease.
We have accomplished significant leasing across our owned and third-party managed portfolios
for the three years ended March 31, 2017, averaging an annual leasing volume of approximately
3.0 million square feet of office space, 11,000 multifamily leases and approximately 710,000 square feet
of retail space. Based on current market demand in our submarkets and the efforts of our dedicated
in-house leasing teams, we expect to significantly increase our occupancy and revenue across our
portfolio generally, and in our lease-up assets in particular. See ‘‘Business and Properties—Case
Studies’’ beginning on page 154.
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Deliver Our Assets Under Construction. As of March 31, 2017, we owned eight high-quality
assets under construction with an estimated incremental investment of $563.5 million ($517.5 million at
our share). Our assets under construction consist of over 784,000 square feet (675,000 square feet at
our share) of office space and 1,012 units (985 at our share) of multifamily, all of which are Metroserved. We believe these projects provide significant potential for value creation. As of March 31, 2017,
over 496,000 square feet, or 63.3% (64.3% at our share), of our office assets under construction were
pre-leased. See ‘‘Business and Properties—Case Studies’’ beginning on page 154.
Develop Our Significant Near-Term and Future Development Pipelines. We have significant
pipelines of concentrated opportunities for value creation through ground-up development, with the
goal of producing favorable risk-adjusted returns on our capital. We expect to be active in developing
these opportunities while maintaining prudent leverage levels in order to create value for JBG SMITH.
• Robust Near-Term Development Pipeline. In addition to the contribution anticipated from our
assets under construction, as of March 31, 2017, we had a pipeline of five high-quality
near-term development assets that we expect to provide substantial growth for our portfolio.
The near-term development pipeline complements the meaningful multifamily focus of our
assets under construction, with seven of the 13 assets in the combined pipeline being
multifamily. Our near-term development pipeline is comprised of approximately 559,000
square feet of wholly owned office space, 755 multifamily units (464 units at our share) and
over 65,000 square feet (6,500 square feet at our share) of retail in our other asset category,
over 99% of which is Metro-served. The majority of these projects have substantially
completed the entitlement process and are in a position to commence construction. In
general, given current market expectations, we estimate that we will commence construction
on near-term development multifamily assets within the 18 months following March 31, 2017,
while commencement of construction on near-term development office assets will more likely
depend on either pre-leasing or attractive submarket supply and demand dynamics. We
believe these projects provide significant potential for value creation.
• Future Development Pipeline. We also have a future development pipeline consisting
of 44 assets. We estimate our future development pipeline can support over 22.1 million
square feet of estimated potential development density (18.3 million square feet of estimated
potential development density at our share), with over 98% of this potential development
density being Metro-served based on our share of estimated potential development density,
which will continue to support incremental development activity well into the future. We are
actively advancing our design plans and, where not already obtained, vesting entitlements on
our future development pipeline, which we believe affords us substantial optionality and
value creation potential. Our future development assets are concentrated in what we believe
are the most attractive submarkets and will have a meaningful multifamily focus, which we
believe will result over time in our portfolio becoming more balanced between office and
multifamily.
Redevelop and Reposition Our Assets. We intend to seek to increase occupancy and rents,
improve tenant quality and enhance cash flow and value by completing the redevelopment and
repositioning of a number of our assets, including the use of our Placemaking process. This approach is
facilitated by our extensive proprietary research platform and deep understanding of submarket
dynamics. The JBG SMITH management team believes there will be significant opportunities to apply
our Placemaking process across the portfolio.
In particular, we plan to use this Placemaking process, among other initiatives, in Crystal City
in order to create value over time. Crystal City’s attractive attributes of its urban-infill location with
close proximity to downtown Washington, DC, its access to Metro and other key transportation
infrastructure and strong surrounding demographics serve as an incredible foundation upon which to
20
build the mix of uses and amenities that today’s tenants demand. We believe that the application of our
Placemaking approach will allow us to increase Crystal City’s attractiveness to potential tenants and
create significant value for our shareholders. In addition to Crystal City, we also believe our
Placemaking process will benefit other submarkets, including the District of Columbia, Rosslyn and
Bethesda.
We evaluate our portfolio on an ongoing basis to identify value-creating redevelopment and
renovation opportunities, including the addition of amenities, unit renovations and building and
landscaping enhancements.
See ‘‘Business and Properties—Case Studies’’ beginning on page 154.
Pursue Attractive Acquisition Opportunities. Since 2000, JBG has invested in more than
235 assets, including over 19.5 million square feet of office, 14,750 multifamily units, over 4.0 million
square feet of retail, 5,700 hotel rooms, 3,200 for-sale multifamily units and townhomes and
25.0 million square feet of estimated potential future development density. Due to JBG’s high volume
of market activity, we are well known in the brokerage community and have deep relationships with the
most active brokers and sellers in the Washington, DC market. In addition, we have developed a
reputation for fair dealing, performance and creative deal-making, which makes us a preferred
counterparty among market participants. We believe that our longstanding market relationships,
reputation and expertise will continue to provide us with access to a pipeline of deals that are often
compelling, off-market opportunities. We will continue to pursue acquisition opportunities with a
disciplined approach and will place an emphasis on well-located, public transit-oriented assets in
improving neighborhoods that have strong prospects for growth and where we believe that we can
increase value through increasing occupancy and rental rates, re-marketing tenant space, enhancing
public spaces, employing Placemaking strategies and improving building management. See ‘‘Business
and Properties—Case Studies’’ beginning on page 154.
The Separation
Background
Since 2013, the management and board of trustees of Vornado have been considering the
merits of alternative strategies involving Vornado’s Washington, DC metropolitan area business,
including a potential tax-free spin-off into an independent publicly traded company. Ultimately,
management and the board of trustees decided that the Washington, DC business and Vornado’s New
York City-focused office and high street retail business would perform better and be better positioned
to grow, and would receive a better combined valuation in the marketplace, if they were separated,
which would allow for the delivery of enhanced value to Vornado shareholders.
In August, 2013, Vornado management began discussions with the management of the JBG
Parties regarding a potential combination of Vornado’s Washington, DC metropolitan area business
with The JBG Companies and certain Washington, DC assets owned by the JBG Parties. Over the
course of the following year and a half, Vornado and the JBG Parties conducted due diligence on each
other (including with respect to their respective real estate portfolios) and negotiated a non-binding
term sheet with respect to the potential combination.
In April 2014, while discussions with the JBG Parties continued, Vornado announced that,
consistent with Vornado’s plan to become a highly focused, office and high street retail REIT, its board
of trustees had approved a plan to spin off Vornado’s shopping center business into Urban Edge
Properties, a new publicly traded REIT. Over the course of 2014, Vornado management worked with its
financial and legal advisors to effectuate the separation of Urban Edge Properties from Vornado’s
other businesses.
21
In January of 2015, the negotiations between Vornado and the JBG Parties concluded without
the execution of the term sheet or any definitive agreement with respect to the potential combination.
On January 15, 2015, Vornado completed the spin-off of Urban Edge Properties from Vornado’s other
businesses.
In late 2015, Vornado’s management and board of trustees again began to review strategic
alternatives with respect to Vornado’s Washington, DC business, including the possibility of a tax-free
spin-off. In June 2016, Vornado’s management, in consultation with its financial advisors, determined
that a tax-free spin-off of the Washington, DC business was in the best interests of Vornado and would
be the best way to deliver value to shareholders, and directed Vornado’s legal and financial advisors to
begin preparations for implementing the transaction.
On August 22, 2016, Steven Roth and Michael Franco of Vornado resumed discussions with
W. Matthew Kelly and Michael Glosserman of JBG regarding the possible combination of Vornado’s
Washington, DC business with that of JBG. Discussions continued over the course of the following
week, and the parties exchanged drafts of a non-binding term sheet with respect to the potential
combination shortly thereafter.
During the month of September 2016, Vornado and JBG performed in-depth valuation
analyses of each other’s businesses, continued to negotiate the terms of the potential separation and
combination, and exchanged several drafts of the non-binding term sheet. Members of the respective
management of Vornado and JBG, and their respective legal and financial advisors, participated in
frequent calls and meetings regarding the principal terms of the transaction. On September 30, 2016,
Vornado and JBG agreed with respect to such principal terms and directed their respective legal and
financial advisors to draft the agreements necessary to memorialize the agreed terms and to conduct
due diligence review of the assets to be included in the separation and combination.
On October 6, 2016, the Vornado board of trustees met to discuss the potential transaction. At
the meeting, the board of trustees indicated its support for management continuing negotiations,
subject to the board of trustees’ final approval of the definitive agreements prior to their execution.
Over the course of October, 2016, Vornado and JBG exchanged and negotiated drafts of the
transaction agreements setting forth the terms of the separation and the combination, and continued to
perform due diligence on the assets to be included in the transaction. Vornado and JBG continued to
negotiate with respect to the relative equity values of the assets to be contributed by each of them and
the consideration to be received in exchange therefor.
On October 31, 2016, the Vornado board of trustees met and approved the proposed
transaction and the MTA. On October 31, 2016, Vornado announced that Vornado and VRLP had
entered into the MTA with the JBG Parties, JBG SMITH and JBG SMITH LP, pursuant to which
Vornado intends to separate the Vornado Included Assets from Vornado’s other businesses and
combine them with the JBG Included Assets. JBG SMITH will include Vornado’s Washington, DC
segment.
Structure and Formation of JBG SMITH
The separation will be effectuated by means of a pro rata distribution by Vornado to its
common shareholders of all outstanding JBG SMITH common shares. JBG SMITH was formed for the
purpose of receiving, via contribution from Vornado, all of the assets and liabilities of Vornado’s
Washington, DC segment, and combining Vornado’s Washington, DC segment (which operates as
Vornado / Charles E. Smith) and the management business and certain Washington, DC assets of JBG.
Immediately prior to such distribution by Vornado, VRLP will distribute all outstanding JBG
SMITH LP common limited partnership units on a pro rata basis to holders of VRLP’s common
limited partnership units, consisting of Vornado and the other common limited partners of VRLP.
Following such distribution by VRLP and prior to such distribution by Vornado, Vornado will
contribute to JBG SMITH all of the common limited partnership units of JBG SMITH LP it receives
in the distribution by VRLP in exchange for JBG SMITH common shares. On
, the board of
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trustees of Vornado declared the distribution of all JBG SMITH common shares on the basis of
one JBG SMITH common share for every two Vornado common shares held of record as of the close
of business on the record date. On the same date, VRLP declared the distribution of all of the
outstanding JBG SMITH LP common limited partnership units to Vornado and the other holders of
common limited partnership units of VRLP on the basis of one JBG SMITH LP common limited
partnership unit for every two common limited partnership units of VRLP held of record as of the
close of business on the record date. Following the distribution by VRLP, the contribution by Vornado
to JBG SMITH of JBG SMITH LP common limited partnership units and the distribution by Vornado,
Vornado and JBG SMITH will be two independent, publicly held companies.
Prior to or concurrently with the separation of the Washington, DC segment from Vornado’s
other businesses and the distribution by Vornado of JBG SMITH common shares, Vornado will engage
in certain restructuring transactions that are designed to consolidate the ownership of the Vornado
Included Assets into JBG SMITH, facilitate the separation and distribution by Vornado and provide us
with our initial capital.
In connection with the separation and distribution of JBG SMITH common shares by Vornado,
the following transactions have occurred or are expected to occur concurrently with or prior to
completion of the separation and distribution by Vornado:
• JBG SMITH was formed as a Maryland real estate investment trust on October 27, 2016.
• Our operating partnership, which we refer to as JBG SMITH LP, was formed as a Delaware
limited partnership on October 28, 2016.
• Pursuant to the terms of the MTA and the Separation and Distribution Agreement (the
‘‘Separation Agreement’’), VRLP will cause the Vornado Included Assets, and the Vornado
Included Entities that own the Vornado Included Assets, to be contributed or otherwise
transferred to JBG SMITH LP in exchange for 100% of its outstanding common limited
partnership units.
• In connection with the contribution or other transfer of assets described above, it is expected
that JBG SMITH or certain entities that will be our subsidiaries after the separation will
assume a certain amount of existing secured property-level indebtedness related to certain of
the Vornado Included Properties.
• To provide additional liquidity following the separation, we are arranging a credit facility
under which we expect to have significant borrowing capacity.
• Certain of VRLP’s Washington, DC segment employees will become employees of JBG
SMITH.
• Pursuant to the MTA and the Separation Agreement, VRLP will distribute 100% of the
outstanding JBG SMITH LP common limited partnership units to Vornado and the other
common limited partners of VRLP pro rata with respect to their ownership of common
limited partnership units of VRLP as of the record date. Vornado and each of the other
common limited partners of VRLP will be entitled to receive one JBG SMITH LP common
limited partnership unit for every two common limited partnership units of VRLP held as of
the close of business on the record date.
• Pursuant to the MTA and the Separation Agreement, Vornado will contribute all of its JBG
SMITH LP common limited partnership units to JBG SMITH in exchange for additional
JBG SMITH common shares.
• Pursuant to the MTA and the Separation Agreement, Vornado will distribute all of our
outstanding common shares to Vornado common shareholders as of the record date on a pro
rata basis. Each Vornado common shareholder will be entitled to receive one JBG SMITH
common share for every two Vornado common shares held by such shareholder as of the
record date.
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• In addition to the MTA and the Separation Agreement, JBG SMITH will enter into a
Transition Services Agreement, a Tax Matters Agreement, an Employee Matters Agreement,
the Cleaning Services Agreements, and a Management Agreement (as defined below) with
Vornado.
In general, we intend to own our assets and conduct substantially all of our business through
our operating partnership and its subsidiaries. The following diagram depicts our expected
organizational structure upon the completion of the separation and distribution by Vornado and prior
to the combination.
Vornado Common
Shareholders
100%
100%
Vornado Realty
Trust
JBG SMITH
VRLP
Common
Limited
Partners
94%
6%
94%
6%
Vornado
Realty L.P.
JBG SMITH LP
6JUN201719120053
Our Post-Separation Relationship with Vornado
JBG SMITH will enter into the Separation Agreement with Vornado. In addition, JBG SMITH
will enter into various other agreements to effect the separation and provide a framework for our
relationship with Vornado after the separation, such as the Transition Services Agreement, a tax
matters agreement (the ‘‘Tax Matters Agreement’’), an employee matters agreement (the ‘‘Employee
Matters Agreement’’), certain cleaning services agreements with a subsidiary of Vornado with respect to
the JBG Included Properties and Vornado Included Properties (the ‘‘Cleaning Services Agreements’’),
and a management agreement (the ‘‘Management Agreement’’). These agreements will provide for the
allocation between JBG SMITH and Vornado of Vornado’s assets, liabilities and obligations (including
its assets, employment and benefits liabilities, and tax-related assets and liabilities) attributable to
periods prior to, at and after our separation from Vornado and will govern certain relationships
between JBG SMITH and Vornado after the separation.
24
JBG SMITH and JBG SMITH LP will be responsible for all bona fide third-party expenses in
connection with the separation and distributions by each of the Vornado Parties, the JBG Parties, JBG
SMITH and JBG SMITH LP, whether before or after the distribution date, other than certain consent
expenses, financial advisor expenses, and certain costs, up to a specified cap, incurred in connection
with the prosecution or settlement of any claim under certain tenants’ rights statutes in Washington,
DC and Montgomery County, Maryland.
JBG SMITH and Vornado will enter into a Transition Services Agreement prior to the
distribution pursuant to which Vornado and its subsidiaries will provide various corporate support
services to JBG SMITH. The services to be provided to JBG SMITH will initially include information
technology, financial reporting and SEC compliance, and possibly other matters. The costs of the
services to be provided to JBG SMITH will be based on fully burdened cost and are expected to
diminish over time as JBG SMITH fills vacant positions and builds its own infrastructure. We believe
that the terms are comparable to those that would have been negotiated on an arm’s-length basis. In
addition, pursuant to the terms of the MTA, following the consummation of the separation and the
combination, from time to time, JBG SMITH may provide property management, asset management,
leasing brokerage and other similar services with respect to any Vornado real property asset that is
located in the Washington, DC metropolitan area that is excluded from the separation and the
combination (including any such Vornado Included Asset that is designated as a Kickout Interest
pursuant to the MTA). However, JBG SMITH will not provide any services that, as of the date of the
combination, are provided to such property by a third party that is not an affiliate of Vornado. Such
services will be provided pursuant to the Management Agreement, which will be entered into upon the
terms specified in the MTA and upon such other reasonable and customary terms as we and Vornado
may agree in good faith. The aggregate annual amount of fees we expect to receive pursuant to the
Management Agreement is $65,000.
For additional information regarding the Separation Agreement and other transaction
agreements, please refer to the sections entitled ‘‘Risk Factors—Risks Related to the Separation and
the Combination’’ and ‘‘Certain Relationships and Related Person Transactions.’’
The Combination
At 12:01 a.m. on the business day following the separation, the JBG Parties will contribute to
JBG SMITH the JBG Included Assets, which consist of a portfolio of assets in the Washington,
DC metropolitan area consisting of (i) 30 operating assets comprised of 19 office assets totaling
approximately 3.6 million square feet (2.3 million square feet at JBG’s share), nine multifamily assets
with 2,883 units (1,099 units at JBG’s share) and two other assets totaling approximately 490,000 square
feet (73,000 square feet at JBG’s share); (ii) eight office and multifamily assets under construction
totaling over 1.6 million square feet (1.5 million square feet at JBG’s share); (iii) five near-term
development office and multifamily assets totaling over 1.3 million estimated square feet (1.0 million
square feet at JBG’s share) and (iv) 26 future development assets totaling over 11.7 million square feet
(8.5 million square feet at JBG’s share) of estimated potential development density in exchange for
newly issued JBG SMITH common shares or newly issued common limited partnership units of JBG
SMITH LP (or, in certain circumstances, cash). In addition, JBG will contribute its management
business to JBG SMITH through the merger of JBG/Operating Partners, L.P. (which we refer to as
JBG Operating Partners) with and into a subsidiary of JBG SMITH LP and the contribution of all of
the assets of JBG Properties to JBG SMITH LP in exchange for newly issued common limited
partnership units of JBG SMITH LP, as well as the contribution of certain managing member interests
in certain entities (the ‘‘JBG Included Entities’’) owning the JBG Included Properties held by certain
affiliates (the ‘‘JBG Managing Member Entities’’) of the JBG Management Entities.
Immediately following the combination, in total and taking into account the indirect interests in
JBG SMITH’s assets that are held by the limited partners of JBG SMITH LP, the economic interests in
JBG SMITH are expected to be owned approximately 73% by Vornado common shareholders and
25
holders of VRLP common limited partnership units as of the record date, 21% by JBG investors as of
the date of the combination, and 6% by current JBG management, which percentages are subject to
change pursuant to certain closing adjustments set forth in the MTA. The economic interests in JBG
SMITH that will be owned by JBG investors and current JBG management will consist of the JBG
SMITH common shares and JBG SMITH LP common limited partnership units issued upon the
completion of the combination in a private placement satisfying the requirements of Regulation D. At
such time, JBG SMITH’s common shares are expected to be owned approximately 80% by Vornado
common shareholders as of the record date and approximately 20% by JBG investors and current JBG
management. In addition, holders of VRLP common limited partnership units as of the record date are
expected to own approximately 4% of the common limited partnership units of JBG SMITH LP, JBG
investors as of the date of the combination are expected to own approximately 10% of the common
limited partnership units of JBG SMITH LP, and JBG SMITH is expected to own the remaining 86%.
Combination Steps and Key Terms and Conditions of the MTA
Combination Steps
In connection with the combination, the following transactions have occurred or are expected
to occur concurrently with or prior to completion of the combination:
• The separation and distribution will be completed, as described above.
• Prior to the combination, each JBG Contributing Fund will engage in a restructuring through
a series of steps pursuant to which, among other things, the JBG Included Assets of such
JBG Contributing Funds will be transferred to a newly formed entity (each, a
‘‘Transferred LLC’’ and, collectively, the ‘‘Transferred LLCs’’) to be owned directly or
indirectly by the members of such JBG Contributing Fund.
• In the combination, the JBG Included Assets owned by the Transferred LLCs will be
contributed to JBG SMITH LP or its subsidiaries through a series of contribution and
merger transactions (the ‘‘JBG Asset Contributions’’).
• In the combination, JBG Operating Partners will merge with and into a wholly owned
subsidiary of JBG SMITH LP, with the partners of JBG Operating Partners receiving newly
issued common limited partnership units of JBG SMITH LP (the ‘‘JBG OP Merger’’).
• In the combination, JBG Properties will transfer all of its assets to JBG SMITH LP, in
exchange for newly issued common limited partnership units of JBG SMITH LP (the ‘‘JBG
Properties Contribution’’).
• In the combination, each JBG Managing Member Entity will transfer and contribute certain
non-economic managing member interests it has in any JBG Included Entity to a newly
formed wholly owned subsidiary of JBG SMITH LP (the ‘‘JBG Managing Member Interest
Contribution’’).
• In the combination, in consideration of JBG’s contribution of the JBG Included Assets to
JBG SMITH, the applicable JBG entity or certain direct and indirect owners of such JBG
entity (which we refer to as the JBG designees) will receive from JBG SMITH and JBG
SMITH LP, in a private placement satisfying the requirements of Regulation D, a number of
JBG SMITH common shares and/or common limited partnership units (or, in certain
circumstances, cash).
• JBG’s employees, with limited exceptions, will become employees of JBG SMITH.
• In connection with the contribution or other transfer of assets described above, it is expected
that JBG SMITH or certain entities that will be our subsidiaries after the combination will
assume a certain amount of existing secured property-level indebtedness related to the JBG
Included Properties (in addition to the secured property-level indebtedness related to the
Vornado Included Properties assumed in connection with the separation). On a pro forma
26
basis, JBG SMITH has approximately $2.2 billion aggregate principal amount of consolidated
debt outstanding ($2.2 billion at our share) and our unconsolidated joint ventures had over
$1.1 billion aggregate principal amount of debt outstanding ($380 million at our share),
resulting in a total of approximately $2.6 billion aggregate principal amount of debt
outstanding at our share.
Following the combination, certain JBG Funds will continue to own assets that will not be
contributed to JBG SMITH LP pursuant to the MTA (the ‘‘JBG Excluded Assets’’) and the principals
of the JBG Parties, including the principals who will become executive officers of JBG SMITH at the
completion of the combination, will retain interests in these JBG Funds, which entitle them to
‘‘promote’’ payments with respect to the JBG Excluded Assets and certain joint venture interests if
certain return thresholds are achieved. Following the combination, the expected economic interests in
JBG SMITH held by such principals who are also executive officers of JBG SMITH will be significantly
greater than their expected economic interests in the JBG Funds. The JBG Excluded Assets are largely
not in direct competition with JBG SMITH since they are not consistent with JBG SMITH’s long-term
business strategy, either because they are asset types that JBG SMITH does not intend to focus on
going forward or because they are located in markets that will not be core markets for JBG SMITH
going forward or that are not Metro-served. Furthermore, the JBG Excluded Assets are expected to be
sold over time as their respective business plans are completed, eliminating any actual or potential
conflicts of interest. The JBG Excluded Assets can generally be categorized as (i) condominium and
townhome assets, (ii) hotels, (iii) assets likely to be sold in the near term, whether because they are
under contract for sale, being marketed for sale or likely to be marketed for sale in the near term,
(iv) assets located in markets that will not be core markets for JBG SMITH going forward or that are
non-Metro-served, (v) noncontrolling joint venture interests and (vi) single-tenant leased General
Services Administration assets that are encumbered with long-term, hyper-amortizing bond financing
that is not consistent with the financing strategy of JBG SMITH.
The MTA
The MTA provides for the transactions that will comprise the separation and the combination
and sets out the rights and obligations of Vornado, VRLP, JBG SMITH, JBG SMITH LP and the JBG
Parties in connection therewith. A summary of the principal terms of the MTA is set forth below. This
summary does not purport to be complete, and is qualified in its entirety by reference to the full text of
the MTA, which will be filed as Exhibit 2.1 to the registration statement on Form 10 of which this
information statement forms a part and is incorporated herein by reference. See ‘‘The Separation and
the Combination—The Combination—The MTA’’ for more information.
The Separation and the Combination
The MTA provides for the separation to take place as described above under ‘‘—The
Separation,’’ and for the combination to take place through a series of contributions and mergers
between the JBG Parties and JBG SMITH or its subsidiaries, as described above.
Consideration
In consideration of JBG’s contribution of the JBG Included Assets to JBG SMITH, the
applicable JBG entity or certain direct and indirect owners of such JBG entity (which we refer to as
the JBG designees) will receive from JBG SMITH and JBG SMITH LP, in a private placement
satisfying the requirements of Regulation D, a number of JBG SMITH common shares and/or common
limited partnership units (or, in certain circumstances, cash) to be determined based upon the relative
equity values of the Vornado Included Assets and the JBG Included Assets. The JBG Parties will be
entitled, in the aggregate, to receive a total number of JBG SMITH common shares and/or JBG
SMITH LP common limited partnership units (which we refer to as equity consideration) equal to the
product of (x) a fraction, the numerator of which is the aggregate of the equity values of the JBG
Parties’ JBG Included Assets (as determined in accordance with the MTA) and of the total amount of
27
cash contributed by the JBG Parties to JBG SMITH upon the consummation of the combination, and
the denominator of which is the aggregate of the equity values of the Vornado Included Assets (as
determined in accordance with the MTA) and of the total amount of cash contributed by Vornado to
JBG SMITH upon the separation, multiplied by (y) the sum of (i) the number of JBG SMITH LP
common limited partnership units received by holders of VRLP common limited partnership units
(other than Vornado) in the distribution by VRLP plus (ii) the number of JBG SMITH common shares
received by shareholders of Vornado in the distribution by Vornado. With respect to the JBG Asset
Contributions, the applicable JBG entity (or its JBG designees) will be entitled to receive JBG SMITH
common shares and/or JBG SMITH LP common limited partnership units in accordance with the
elections of such JBG designees. With respect to the JBG OP Merger and the JBG Properties
Contribution, the applicable JBG entity (or its JBG designees) will be entitled to receive only JBG
SMITH LP common limited partnership units. With respect to the JBG Managing Member Interest
Contribution, the applicable JBG Managing Member Entity will receive no consideration.
To the extent that Vornado and VRLP reasonably determine with respect to any JBG entity or
JBG designee that the issuance of JBG SMITH common shares or JBG SMITH LP common limited
partnership units to such JBG entity or JBG designee cannot be effected in a private placement
satisfying the requirements of Regulation D, or if the JBG Parties do not timely furnish to the Vornado
Parties a satisfactory investor questionnaire from any JBG entity or JBG designee, JBG SMITH and
JBG SMITH LP shall pay the consideration owed to such JBG entity or JBG designee in the form of
cash (which we refer to as cash consideration) rather than equity consideration. Any such cash
consideration shall be equal to the product of (x) the number of JBG SMITH common shares and/or
JBG SMITH LP common limited partnership units that would otherwise have been payable to such
JBG entity or JBG designee multiplied by (y) the average of the high and the low trading prices of JBG
SMITH common shares on the New York Stock Exchange, which we refer to as the NYSE, on the date
of the completion of the combination. If the total amount of cash consideration exceeds $5 million,
then unless Vornado and VRLP agree that the excess may be drawn from JBG SMITH’s credit facility,
then the revaluation time (as defined below under ‘‘—Kickout Interests’’) shall be extended until
11:59 p.m. on the last day of the calendar month in which Vornado and JBG first determine that the
total cash consideration will be equal to or less than $5 million, provided that the revaluation time may
not be extended as a result of an excess of cash consideration beyond April 30, 2017. Because the
closing of the combination will take place on the fifteenth day of the calendar month immediately
following the month in which the revaluation time occurs, any postponement of the revaluation time
due to an excess of cash consideration will result in a postponement of the closing.
The common limited partnership units of JBG SMITH LP issued in connection with the JBG
OP Merger and the JBG Properties Contribution to individuals employed by JBG Properties and who
will continue as employees of JBG SMITH and to Michael Glosserman (as a member of the board of
trustees of JBG SMITH) will be subject to certain vesting and/or transfer restrictions. 50% of such
units will be fully vested and not subject to forfeiture at the consummation of the combination, with the
remaining 50% vesting in equal monthly installments over a 30-month period beginning on the first day
of the 31st month after the combination and ending on the first day of the 60th month after the
combination as long as the individual remains employed by JBG SMITH (subject to accelerated vesting
upon the occurrence of certain specified events as described in ‘‘The Separation and the
Combination—The Combination—The MTA—Consideration’’). The units that are fully vested at the
time of issuance will not be transferable or redeemable, including for JBG SMITH common shares or
otherwise, for three years following the combination (subject to early termination of the transfer
restrictions upon the occurrence of certain specified events as described in ‘‘The Separation and the
Combination—The Combination—The MTA—Consideration’’), except that up to 10% of an
individual’s total units may be sold, pledged or redeemed for JBG SMITH common shares during this
period (subject to the transfer and redemption restrictions imposed on the units generally by the
Partnership Agreement). The units that vest after issuance will be subject to the foregoing restrictions
28
on transfer and redemption for five years following the combination (subject to early termination of the
transfer restrictions upon the occurrence of certain specified events as described in ‘‘The Separation
and the Combination—The Combination—The MTA—Consideration’’). The units issued to JBG
employees who are retiring in connection with, or are expected to retire within a year after, the
combination will not be subject to transfer or redemption restrictions other than those applicable to
such units generally, but may be subject to vesting and forfeiture, as set forth in the applicable Unit
Issuance Agreement pursuant to which such units are issued.
Kickout Interests
The contribution of certain assets to JBG SMITH LP in connection with the separation and
the combination will require the consent of certain third parties, including joint venture partners,
lenders and ground lessors of the Vornado Parties and the JBG Parties or their respective subsidiaries.
The MTA requires the Vornado Parties and the JBG Parties to seek to obtain such consents, and with
respect to any required debt consent, to seek to prepay or refinance the applicable loan if such consent
is not received within 120 days following the date of the MTA. If (i) a consent (or, with respect to debt
consents, a prepayment or refinancing in a manner that does not restrict the separation and the
combination and meets certain other terms set forth in the MTA) is not obtained with respect to
certain specified assets prior to the date that is 20 days before the anticipated completion of the
combination, or (ii) certain entities owned by the Vornado Parties and/or by the JBG Parties have not
completed certain specified actions prior to the date that is 20 days before the anticipated completion
of the combination, such assets will not be contributed or transferred as part of the separation and the
combination (we refer to each such asset or entity that is excluded for the above-referenced reasons or
pursuant to another provision of the MTA as a ‘‘Kickout Interest’’). In addition, at any time on or
before the revaluation time (as defined below), the Vornado Parties have the right to elect to designate
one JBG Included Property as being excluded from the Included Assets, and such asset will not be
transferred at the time of the separation and the combination. The ‘‘revaluation time’’ will be
11:59 p.m. Eastern time on the last day of the calendar month in which all of the conditions to
consummation of the separation and the combination have been satisfied or waived (unless such
conditions are satisfied or waived in the last five days of a calendar month, in which case the
revaluation time will be 11:59 p.m. Eastern time on the last day of the following calendar month).
Until the later of 60 days following the completion of the combination and December 29, 2017
(which we refer to as the outside date), with respect to certain Kickout Interests, the MTA obligates
the Vornado Parties and the JBG Parties to cooperate in good faith and use commercially reasonable
efforts to obtain the necessary consents required to transfer such Kickout Interests after the completion
of the combination. For any such Kickout Interest for which such consent is obtained within such
period, such Kickout Interest will be contributed to JBG SMITH LP by the applicable Vornado Party
or JBG Party in exchange for JBG SMITH LP common limited partnership units or JBG SMITH
common shares, as applicable.
JBG SMITH Board of Trustees and Officers
Immediately after the separation and distribution by Vornado, (i) the number of trustees of
JBG SMITH shall increase to 12, and the board of trustees shall be comprised of six individuals
designated by the JBG Parties (such persons, and any replacement designees selected, the ‘‘JBG Board
Designees’’) and six individuals designated by the Vornado Parties (such persons, and any replacement
designees selected, the ‘‘Vornado Board Designees’’) and (ii) the board of trustees of JBG SMITH
shall (a) appoint Steven Roth as Chairman of the board of trustees of JBG SMITH and Robert Stewart
as Executive Vice Chairman of the board of trustees of JBG SMITH and (b) appoint an equal number
of JBG Board Designees and Vornado Board Designees to the Audit Committee, Compensation
Committee and Corporate Governance and Nominating Committee (with the JBG Board Designees
and the Vornado Board Designees to serve on such committees being selected at the direction of the
JBG Parties and Vornado, respectively). In addition to Mr. Roth as Chairman, Mitchell Schear, the
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current President of Vornado / Charles E. Smith, will serve as a trustee and be a Vornado Board
Designee. In addition to Mr. Stewart as Vice Chairman, W. Matthew Kelly and Michael Glosserman,
who are currently Managing Partners of JBG, will serve as trustees and be JBG Board Designees.
For a period of two years following the consummation of the separation and the combination,
if any Vornado Board Designee or JBG Board Designee is unable or unwilling to serve or is otherwise
no longer serving as a member of the board of trustees of JBG SMITH, then the remaining Vornado
Board Designees or JBG Board Designees, respectively, may designate a replacement individual
reasonably satisfactory to the Corporate Governance and Nominating Committee of the board of
trustees of JBG SMITH (which we refer to as a replacement designee) and the board of trustees of
JBG SMITH shall promptly appoint such replacement designee to fill the vacancy created thereby. In
addition, in connection with the first annual meeting following the consummation of the separation and
the combination, the board of trustees of JBG SMITH, subject to the reasonable exercise of its duties,
will take all such actions as may be necessary to nominate the Vornado Board Designees and the JBG
Board Designees (including their respective replacement designees, if any) for election by JBG
SMITH’s shareholders and will use no less rigorous efforts to cause the election of such Vornado
Board Designees and JBG Board Designees than the manner in which JBG SMITH supports other
nominees for the board of trustees of JBG SMITH.
JBG SMITH will be led by the current executive management team of the JBG Management
Entities. W. Matthew Kelly will be named Chief Executive Officer, David Paul will be named President
and Chief Operating Officer, James Iker will be named Chief Investment Officer and Brian Coulter
and Kai Reynolds will be named Co-Chief Development Officers. In addition, from Vornado,
Stephen W. Theriot will be Chief Financial Officer and Patrick J. Tyrrell will be Chief Administrative
Officer.
Conditions to Consummation of the Separation and the Combination
Consummation of the separation and the combination is subject to certain mutual conditions of
the parties, including: (i) that the JBG SMITH common shares to be distributed shall have been
accepted for listing on the NYSE, subject to official notice of distribution; (ii) that no law shall have
been enacted or promulgated by any governmental entity of competent jurisdiction which prohibits or
makes illegal the consummation of the separation, the distributions by Vornado and VRLP or the
combination; (iii) that any required waiting periods under any provision of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and any other federal or state antitrust law shall have expired,
been waived or been terminated; (iv) the consummation of the separation and the distribution by
Vornado in all material respects in accordance with the Separation Agreement; (v) that the SEC shall
have declared effective the registration statement on Form 10 of which this information statement
forms a part, and such registration statement shall not be subject to any stop order or proceeding
seeking a stop order; and (vi) that no more than 40% of the JBG Included Properties and no more
than 20% of the Vornado Included Properties (each percentage based on the initial asset values agreed
to by the parties in the MTA) shall be designated as ‘‘Kickout Interests’’ (and therefore prevented from
being transferred to JBG SMITH) pursuant to the terms of the MTA. In addition, the combination will
not take place before the outside date unless the parties otherwise agree or, assuming the satisfaction
or waiver of all other conditions to the consummation of the separation and the combination (other
than those that by their terms are to be satisfied at the consummation of the separation and the
combination, but subject to the satisfaction or waiver of such conditions), one of the parties exercises
its right to cause the consummation of the separation and the combination to take place as follows
(with each of the following percentages based on the initial asset values agreed to by the parties in the
MTA): (i) the Vornado Parties may set the revaluation time to allow the date of the combination to be
on or after March 15, 2017 once (a) no more than 10% of the Vornado Included Properties shall be
Kickout Interests and (b) no more than 20% of the JBG Included Properties shall be Kickout Interests;
(ii) the Vornado Parties may set the revaluation time to allow the date of the combination to be after
30
May 1, 2017 once (a) no more than 15% of the Vornado Included Properties shall be Kickout Interests
and (b) no more than 30% of the JBG Included Properties shall be Kickout Interests; (iii) the JBG
Parties may set the revaluation time to allow the date of the combination to be after July 1, 2017 once
(a) no more than 10% of the Vornado Included Properties shall be Kickout Interests, (b) no more than
20% of the JBG Included Properties shall be Kickout Interests and (c) no more than 20% of a
specified subset of JBG Included Properties shall be Kickout Interests; and (iv) the JBG Parties may
set the revaluation time to allow the date of the combination to be on or after March 15, 2017 once no
Vornado Included Properties or Vornado Included Properties are deemed Kickout Interests.
In addition, the Vornado Parties’ obligation to consummate the separation and the combination
is subject to certain other conditions, including, among others, (i) the accuracy of the JBG Parties’
representations and warranties and the JBG Parties’ compliance with their covenants and agreements
contained in the MTA, subject to customary materiality and material adverse effect qualifiers; (ii) the
receipt by Vornado and JBG SMITH of an opinion of Hogan Lovells US LLP, REIT counsel to JBG,
with respect to each REIT that is being contributed to JBG SMITH by JBG in the combination, on
which Sullivan & Cromwell LLP, REIT counsel to Vornado, and, following the combination, JBG
SMITH and its REIT counsel, shall be entitled to rely, to the effect that each such REIT has been
organized and operated in conformity with the requirements for qualification and taxation as a REIT
under the Internal Revenue Code of 1986, as amended (the ‘‘Code’’); (iii) the receipt by Vornado and
JBG SMITH of an opinion of Sullivan & Cromwell LLP to the effect that JBG SMITH will be
organized and operated in conformity with the requirements for qualification and taxation as a REIT
under the Code and that its proposed method of operation will enable it to continue to meet such
requirements; (iv) the receipt by Vornado of an opinion of Sullivan & Cromwell LLP, satisfactory to the
Vornado board of trustees, to the effect that the distribution by Vornado, together with certain related
transactions, will qualify as a transaction that is generally tax-free for U.S. federal income tax purposes
under Sections 368(a)(1)(D) and 355 of the Code; (v) that certain key individuals shall have remained
employed by the JBG Parties through the date of the consummation of the combination, and shall not
have repudiated their employment agreements entered into with JBG SMITH prior to the
consummation of the combination; and (vi) that the JBG Parties have obtained all of the licenses,
approvals, permits and registrations necessary to operate the management business of the JBG Parties
following the consummation of the combination, subject to certain exceptions.
The JBG Parties’ obligation to consummate the separation and the combination is also subject
to certain other conditions, including, among others, (i) the accuracy of the Vornado Parties’
representations and warranties and the Vornado Parties’ compliance with their covenants and
agreements contained in the MTA, subject to customary materiality and material adverse effect
qualifiers; (ii) the receipt by JBG and JBG SMITH of a written opinion of Sullivan & Cromwell LLP,
REIT counsel to Vornado, with respect to Vornado and to each REIT that is being contributed by
VRLP to JBG SMITH LP, on which Hogan Lovells US LLP, REIT counsel to JBG, and, following the
combination, JBG SMITH and its REIT counsel, shall be entitled to rely, to the effect that Vornado
and each such REIT have been organized and operated in conformity with the requirements for
qualification and taxation as a REIT under the Code; (iii) the receipt by JBG and JBG SMITH of a
written opinion of Hogan Lovells US LLP, REIT counsel to JBG, to the effect that JBG SMITH will
be organized and operated in conformity with the requirements for qualification and taxation as a
REIT under the Code and its proposed method of operation will enable it to continue to meet such
requirements; and (iv) that each current member of JBG SMITH’s board of trustees who is not a JBG
Board Designee or a Vornado Board Designee shall have delivered an irrevocable written resignation
from the board of trustees of JBG SMITH or shall have otherwise ceased to be a member of the board
of trustees of JBG SMITH.
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Termination
The MTA may be terminated by either Vornado or the JBG Parties (i) if the consummation of
the combination has not occurred on or before the outside date; (ii) if the separation and the
combination are permanently enjoined or otherwise prohibited by action of a governmental entity; or
(iii) in the event of certain uncured breaches by the other party that would result in a closing condition
being incapable of being satisfied by the outside date.
Post-Combination Structure of JBG SMITH
The following diagram depicts our expected organizational structure upon the completion of
the separation and the combination.
Vornado
Common
Shareholders
JBG
Owners
80%
100%
Common
Limited
Partners
20%
Vornado
Realty Trust
JBG SMITH
86%
10%
94%
6%
4%
Vornado
Realty
L.P.
JBG
SMITH
LP
6JUN201719120417
Reasons for the Separation and the Combination
Vornado’s board of trustees believes that separating the Vornado Included Assets from the
remainder of Vornado’s businesses and assets and combining the Vornado Included Assets with the
32
JBG Included Assets is in the best interests of Vornado for a number of reasons, including the
following:
• Provides potential for a higher aggregate market value for shareholders. The separation will
enable investors and the financial community to evaluate the performance of JBG SMITH’s
and Vornado’s remaining portfolios separately, which Vornado believes could result in a
higher aggregate market value than Vornado’s pre-spin value. Vornado believes the
separation and combination will enable each business to cultivate a distinct identity and to
appeal to different investors. As a separate company, JBG SMITH will be focused on
Washington, DC, making it an attractive investment opportunity for REIT investors looking
for exposure to this market. The ability to provide investors with two focused investment
vehicles with distinct strategies may enhance both companies’ attractiveness to investors, and
may increase each company’s ability to raise capital, including the ability to use its respective
common shares as acquisition currency.
• Creates two separate, focused companies executing distinct business strategies. As two separate
companies with dedicated management teams, Vornado and JBG SMITH will be highly
focused on their respective markets and will have an enhanced ability to maximize value for
their respective shareholders. Upon the separation, Vornado expects to be the premier
pure-play, publicly traded New York City (‘‘NYC’’) focused real estate company, with 89% of
EBITDA as adjusted generated from NYC assets during the fourth quarter of 2016. Vornado
will have a leading competitive position within key office submarkets, including Penn Plaza,
Midtown, the Plaza District, Midtown South and Chelsea/Meatpacking and key high street
retail destinations, including upper Fifth Avenue, Times Square, Madison Avenue, SoHo,
Union Square and the 34th Street—Penn Plaza District. Further, Vornado will be the only
REIT with a significant concentration of Manhattan high street retail assets, which Vornado
believes to be amongst the scarcest and most valuable real estate in the world. Vornado
believes that the combination of JBG SMITH with the JBG Included Assets will create a
world-class, market-leading Washington, DC real estate company. With a premier portfolio of
Washington, DC assets and a dedicated and highly accomplished Washington, DC focused
management team, JBG SMITH will be positioned to maximize value through the execution
of its embedded growth opportunities, from the capturing of positive Washington, DC market
trends and the development of accretive growth projects as market conditions warrant. The
JBG Included Assets were carefully selected from the JBG Funds’ portfolios in order to
diversify, complement, and enhance the strategic concentration of Vornado / Charles E.
Smith’s existing portfolio in the most desirable submarkets with a focus on growth. Assets
that did not fit these objectives and were not appropriate for a public REIT were
deliberately excluded. As a result, JBG SMITH’s portfolio will be unmatched in scale, with
68 operating assets aggregating approximately 20.2 million square feet (16.1 million square
feet at our share), comprised of 50 office assets aggregating approximately 14.1 million
square feet (12.1 million square feet at our share), 14 multifamily assets aggregating
6,016 units (4,232 units at our share) and four other assets aggregating approximately
765,000 square feet (348,000 square feet at our share); (ii) eight office and multifamily assets
under construction totaling over 1.6 million square feet (1.5 million square feet at our share);
(iii) five near-term development office and multifamily assets totaling over 1.3 million
estimated square feet (1.0 million square feet at our share) and (iv) 44 future development
assets totaling over 22.1 million square feet (18.3 million square feet at our share) of
estimated potential development density. JBG SMITH will have a significant presence in
what JBG SMITH believes are the best submarkets in the Washington, DC metropolitan
area, including Downtown DC, Crystal City, Pentagon City, Rosslyn, Reston and Bethesda.
Over 98% of the portfolio is Metro-served, and JBG SMITH expects to be in an excellent
position to drive shareholder returns over time.
33
• Sharpens focus of Vornado as the premier pure-play NYC real estate company. The separation
represents a significant milestone in the continuation of Vornado’s long-term simplification
strategy, which has resulted in Vornado exiting multiple business lines and non-core assets,
and allowed Vornado to redeploy capital and upgrade the quality of its core NYC portfolio.
In recent years, the softening of the Washington, DC market overshadowed the NYC
portfolio’s performance. After the separation, investors will be able to more fully appreciate
the industry-leading metrics of the remaining Vornado business, which will be a peerless,
highly focused NYC-centric real estate company with premier office assets and the only high
street retail portfolio of unique quality and scale in which the public can invest. Vornado’s
premier NYC platform is a market-leader with substantial embedded growth potential.
• Vornado has the largest NYC portfolio of any REIT by gross asset value, with a unique
opportunity to create substantial value through the redevelopment of its Penn Plaza holdings.
• Creates market-leading Washington, DC company with dedicated, best-in-class management team.
As a result of the combination, JBG SMITH will be led by a dedicated management team
composed of the current executive management team of the JBG Management Entities.
W. Matthew Kelly will be named Chief Executive Officer, David Paul will be named
President and Chief Operating Officer, James Iker will be named Chief Investment Officer
and Brian Coulter and Kai Reynolds will be named Co-Chief Development Officers. In
addition, from Vornado, Stephen W. Theriot will be Chief Financial Officer and Patrick J.
Tyrrell will be Chief Administrative Officer. JBG SMITH’s commercial leasing team will be
led by David Ritchey (Executive Vice President) and will be supported by Jim Creedon, a
25-year veteran with Vornado / Charles E. Smith, and a team of 14 professionals from both
JBG and Vornado / Charles E. Smith. The management team has a collective track record of
active management of a large-scale real estate portfolio and success throughout market
cycles in the Washington, DC metropolitan area.
• Aligns incentives of JBG SMITH management and Vornado management with their respective
shareholders. JBG SMITH, like Vornado, believes equity compensation is most effective as a
motivational tool if it relates to the economic performance of the business that is the
employee’s particular area of responsibility and is not affected by unrelated businesses. As
such, JBG SMITH’s and Vornado’s executive compensation and incentive arrangements will
be designed to motivate their respective management teams to successfully execute their
respective business strategies. After the separation, equity compensation awarded to JBG
SMITH’s employees will be unaffected by the performance of Vornado and instead will only
be affected by the economic performance of JBG SMITH’s assets, which are located in the
Washington, DC metropolitan area, and equity compensation awarded to Vornado’s
employees will be unaffected by the performance of JBG SMITH and instead will be
affected only by the economic performance of its assets, thereby making such compensation
more effective in motivating, attracting and retaining key employees.
• Allows the Vornado Included Assets, particularly in Crystal City, to benefit from JBG SMITH
management’s value creating Placemaking process. The JBG management team has extensive
experience with Placemaking. Vornado believes this approach will allow JBG SMITH to
unlock the value of the Vornado Included Assets over time by improving the submarkets in
which they are located, increasing their attractiveness to potential tenants. In particular, JBG
SMITH expects to use Placemaking on the critical mass of assets it controls in Crystal City,
allowing it to leverage Crystal City’s proximity to downtown Washington, DC and Metro and
other key transportation infrastructure, urban-infill location and strong surrounding
demographics to position Crystal City as a vibrant, amenity-rich destination that can offer a
range of uses. This will drive office, multifamily and retail demand over time, significantly
increasing the value of JBG SMITH’s assets. JBG SMITH also expects to apply the
34
Placemaking approach to the Vornado Included Assets in Pentagon City and Rosslyn, with
similar benefits.
• Enhances transparency and better highlights the attributes of each company. With the separation
of Vornado’s Washington, DC assets into a separate, independent, publicly traded company,
followed immediately by the combination, investors will have the opportunity to invest in two
separate platforms with dedicated and focused management teams. The separation will
improve transparency and better highlight the attributes of both companies, thereby
permitting investors to evaluate each company based upon its own unique investment
characteristics and assess their investment decisions accordingly. Further, this will allow for
more effective independent management and internal capital allocation decisions as
standalone, relevant performance measures will be available for both entities without
competition for internal resources. The separation will also, by its nature, reduce the size of
both JBG SMITH and Vornado, thereby underscoring the relative importance of each
company’s respective business initiatives and increasing their relative contribution to each
company’s underlying performance.
• Separates two businesses with limited synergies. The office and multifamily businesses in
Washington, DC are significantly different from Vornado’s New York City office and high
street retail businesses in terms of tenant bases, geography, asset management and leasing
requirements. Vornado believes there are limited synergies arising from these businesses.
Vornado’s board of trustees also considered a number of potentially negative factors in evaluating the
separation and the combination. Vornado’s board of trustees concluded that the potential benefits of
the separation outweighed these factors. For more information, please refer to the sections entitled
‘‘The Separation and the Combination—Reasons for the Separation and the Combination’’ and ‘‘Risk
Factors’’ included elsewhere in this information statement.
Corporate Information
JBG SMITH was formed as a Maryland real estate investment trust on October 27, 2016 for
the purpose of receiving, via contribution from Vornado, all of the assets and liabilities of Vornado’s
Washington, DC segment. JBG SMITH is currently owned by Vornado. Prior to the contribution of the
Vornado Included Assets to JBG SMITH LP and the contribution by Vornado of its common limited
partnership units of JBG SMITH LP to JBG SMITH, which will occur prior to the distribution by
Vornado of JBG SMITH common shares, JBG SMITH will have no operations. The address of JBG
SMITH’s principal executive office will be 4445 Willard Avenue, Suite 400, Chevy Chase,
Maryland 20815. The telephone number for JBG SMITH’s principal executive office will be
(240) 333-3600.
JBG SMITH will also maintain a website at JBGSMITH.com. JBG SMITH’s website and the
information contained therein or connected thereto will not be deemed to be incorporated herein, and
you should not rely on any such information in making any investment decision.
Reason for Furnishing this Information Statement
This information statement is being furnished solely to provide information to Vornado
common shareholders who will receive JBG SMITH common shares in the distribution by Vornado. It
is not and is not to be construed as an inducement or encouragement to buy or sell any of JBG
SMITH’s securities. The information contained in this information statement is believed by JBG
SMITH to be accurate as of the date set forth on its cover. Changes may occur after that date and
neither Vornado nor JBG SMITH will update the information except in the normal course of their
respective disclosure obligations and practices.
35
Risks Associated with JBG SMITH’s Business and the Separation
An investment in our common shares is subject to a number of risks, including risks relating to
the separation. The following list of risk factors is not exhaustive. Please read the information in the
section captioned ‘‘Risk Factors’’ for a more thorough description of these and other risks.
• Our portfolio of assets is geographically concentrated in the Washington, DC metropolitan
area, which makes us more susceptible to regional and local adverse economic and other
conditions than if we owned a more geographically diverse portfolio.
• Our assets and our property development market are dependent on a metropolitan economy
that is heavily reliant on actual and anticipated federal government spending, and any actual
or anticipated curtailment of such spending could have a material adverse effect on our
financial condition, results of operations, cash flow, per share trading price of our common
shares and ability to make distributions to our shareholders.
• We derive a significant portion of our revenues from U.S. federal government tenants.
• Capital markets and economic conditions can materially affect our liquidity, financial
condition and results of operations, as well as the value of our debt and equity securities.
• Our real estate development activities are subject to risks particular to development, such as
unanticipated expenses, delays and other contingencies, any of which could adversely affect
our financial condition, results of operations, cash flow and the per share trading price of
our common shares.
• We may be unable to renew leases, lease vacant space or re-let space as leases expire
(particularly at our Crystal City assets, which have a number of scheduled lease expirations
in the near-term), which could adversely affect our financial condition, results of operations,
cash flow, per share trading price of our common shares and ability to make distributions to
our shareholders.
• We derive a significant portion of our revenues from five of our assets.
• We derive most of our revenues from office assets and are subject to risks that affect the
businesses of our office tenants, which are generally financial, legal and other professional
firms as well as the U.S. federal government and defense contractors.
• Certain of our retail assets depend on anchor or major tenants to attract shoppers and could
be adversely affected by the loss of, or a store closure by, one or more of these tenants.
• Real estate is a competitive business.
• We depend on leasing space to tenants on economically favorable terms and collecting rent
from tenants who may not be able to pay.
• We may be required to make rent or other concessions and/or significant capital
expenditures to improve our assets in order to retain and attract tenants, which could
adversely affect our financial condition, results of operations, cash flow, per share trading
price of our common shares and ability to make distributions to our shareholders.
• Our success depends on our senior management team whose continued service is not
guaranteed, and the loss of one or more of these persons could adversely affect our ability to
manage our business and to implement our growth strategies, or could create a negative
perception in the capital markets.
36
• The realized and unrealized ‘‘gross leveraged IRRs’’ and ‘‘equity multiples’’ achieved by the
JBG Funds are not necessarily indicative of the future performance of our company, any
asset in our portfolio or an investment in our common shares.
• The actual density of our future development pipeline and/or any particular future
development parcel may not be consistent with the estimated potential development density.
• We may not be able to realize potential incremental annualized rent from our office,
multifamily or other lease-up opportunities set forth in this information statement.
• Partnership or joint venture investments could be adversely affected by our lack of sole
decision-making authority, our reliance on partners’ or co-venturers’ financial condition and
disputes between us and our partners or co-venturers.
• Terrorist attacks, such as those of September 11, 2001, may adversely affect the value of our
assets and our ability to generate revenue.
• We have no history operating as an independent company, and our historical and pro forma
financial information is not necessarily representative of the results that we would have
achieved as a separate, publicly traded company and may not be a reliable indicator of our
future results.
• We are dependent on Vornado to provide certain services to us pursuant to the Transition
Services Agreement, and it may be difficult to replace the services provided under such
agreement.
• If the distribution by Vornado, together with certain related transactions, does not qualify as
a transaction that is generally tax-free for U.S. federal income tax purposes, Vornado and
Vornado shareholders could be subject to significant tax liabilities.
• JBG SMITH could be required to indemnify Vornado for certain material tax obligations
that could arise as addressed in the Tax Matters Agreement.
• Unless Vornado and JBG SMITH are both REITs immediately after the distribution and at
all times during the two years thereafter, the distribution could be taxable to Vornado and its
shareholders or JBG SMITH could be required to recognize gain for tax purposes.
• Potential indemnification liabilities to Vornado pursuant to the Separation Agreement could
materially adversely affect our operations.
• Vornado and the JBG Parties may not be able to transfer their respective interests in certain
assets that are subject to certain debt arrangements, are partially owned through a joint
venture or similar structure, or are leased from a third party due to the need to obtain the
consent of third parties, or they may not be able to complete certain actions with respect to
certain assets as required by the MTA, which in either case may result in such assets being
excluded from the separation and the combination.
• After the separation and the combination, certain of our trustees and executive officers may
have actual or potential conflicts of interest because of their previous or continuing equity
interest in, or positions at, Vornado or the JBG Parties, as applicable, including members of
our senior management, who will continue to have an ownership interest in the JBG Funds
and will continue to own carried interests in each fund and in certain of our joint ventures
that will entitle them to receive additional compensation if the fund or joint venture achieves
certain return thresholds.
• We may not achieve some or all of the expected benefits of the separation and the
combination, and the separation and the combination may adversely affect our business.
37
• In connection with our separation from Vornado, Vornado will indemnify us for certain
pre-distribution liabilities and liabilities related to Vornado assets. However, there can be no
assurance that these indemnities will be sufficient to protect us against the full amount of
such liabilities, or that Vornado’s ability to satisfy its indemnification obligation will not be
impaired in the future.
• Failure to maintain effective internal control over financial reporting in accordance with
Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business
and share price.
• Substantial sales of our common shares may occur in connection with the distribution, which
could cause our share price to decline.
• We expect to have a substantial amount of indebtedness, which may limit our financial and
operating activities and expose us to the risk of default under our debt obligations.
• We may incur significant costs to comply with environmental laws and environmental
contamination may impair our ability to lease and/or sell real estate.
• Our declaration of trust and bylaws, the partnership agreement of our operating partnership
and Maryland law contain provisions that may delay, defer or prevent a change of control
transaction that might involve a premium price for our common shares or that our
shareholders otherwise believe to be in their best interest.
• The limited partnership agreement of our operating partnership requires the approval of the
limited partners with respect to certain extraordinary transactions involving JBG SMITH,
which may reduce the likelihood of such transactions being consummated, even if they are in
the best interests of, and have been approved by, our shareholders.
• Until the 2020 annual meeting of shareholders, JBG SMITH will have a classified board of
trustees and that may reduce the likelihood of certain takeover transactions.
• Substantially all of our assets will be owned by subsidiaries. We depend on dividends and
distributions from these subsidiaries. The creditors of these subsidiaries are entitled to
amounts payable to them by the subsidiaries before the subsidiaries may pay any dividends
or other distributions to us.
• No market currently exists for the JBG SMITH common shares and we cannot be certain
that an active trading market for our common shares will develop or be sustained after the
separation. Following the separation, our share price may fluctuate significantly.
38
QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND THE COMBINATION
What is JBG SMITH and why is Vornado
separating the Vornado Included Assets,
distributing JBG SMITH’s shares and
combining it with the JBG Included Assets? . .
What is JBG? . . . . . . . . . . . . . . . . . . . . . . . .
JBG SMITH, which is currently a wholly owned
subsidiary of Vornado, was formed for the purpose of
receiving, via contribution from Vornado, all of the
assets and liabilities of Vornado’s Washington, DC
segment, and combining Vornado’s Washington, DC
segment (which operates as Vornado / Charles E.
Smith) and the management business and certain
Washington, DC assets of JBG. The separation of
JBG SMITH from Vornado and the distribution of
JBG SMITH common shares by Vornado will enable
each of JBG SMITH and Vornado to have a
dedicated management team able to focus on its own
operations and respond more effectively to the
different needs of its businesses. JBG SMITH and
Vornado expect that the separation and the
combination will result in enhanced long-term
performance of each business for the reasons
discussed in the sections entitled ‘‘The Separation and
the Combination—Background’’ and ‘‘The Separation
and the Combination—Reasons for the Separation
and the Combination.’’
The JBG Companies is a group of affiliated entities
that invest in, own, develop and manage real estate
assets in the Washington, DC metropolitan area. JBG,
the leading local sharpshooter, is a mixed-use
specialist that invests almost exclusively in urban-infill,
transit-oriented real estate in Washington, DC.
Pursuant to the terms of the MTA, Vornado and JBG
have agreed to combine nearly all of Vornado’s
Washington, DC assets (which will be contributed to
JBG SMITH prior to the separation and distribution)
and certain other assets with the management
business and certain assets of The JBG Companies.
39
What is a REIT? . . . . . . . . . . . . . . . . . . . . . .
Following the separation, JBG SMITH intends to
elect and qualify to be taxed as a REIT under
Sections 856 through 859 of the Code, from and after
JBG SMITH’s taxable year that includes the
distribution of our common shares by Vornado. As a
REIT, JBG SMITH generally will not be subject to
U.S. federal income tax on its REIT taxable income
that it distributes to its shareholders. A company’s
qualification as a REIT depends on its ability to meet,
on a continuing basis, through actual investment and
operating results, various complex requirements under
the Code relating to, among other things, the sources
of its gross income, the composition and values of its
assets, its distribution levels and the diversity of
ownership of its shares. JBG SMITH believes that,
immediately after the separation, it will be organized
in conformity with the requirements for qualification
and taxation as a REIT under the Code, and that its
intended manner of operation enables it to meet the
requirements for qualification and taxation as a REIT.
JBG SMITH anticipates that distributions it makes to
its shareholders generally will be taxable to its
shareholders as ordinary income, although a portion
of the distributions may be designated by JBG
SMITH as qualified dividend income or capital gain
or may constitute a return of capital. For a more
complete discussion of the U.S. federal income
taxation of REITs and the tax treatment of
distributions to shareholders of JBG SMITH, please
refer to ‘‘Material U.S. Federal Income Tax
Consequences.’’
Why am I receiving this document? . . . . . . . . .
You are receiving this document because you are a
Vornado common shareholder. If you are a Vornado
common shareholder as of the close of business
on
, you are entitled to receive one JBG
SMITH common share for every two Vornado
common shares that you held at the close of business
on such date. This document will help you understand
how the separation and the combination will affect
your investment in Vornado and your investment in
JBG SMITH after the separation.
How will the separation of JBG SMITH from
Vornado work? . . . . . . . . . . . . . . . . . . . . . .
To accomplish the separation, Vornado will distribute
all of the outstanding JBG SMITH common shares to
Vornado common shareholders on a pro rata basis,
with each Vornado common shareholder entitled to
receive one JBG SMITH common share for every two
Vornado common shares held by such shareholder as
of the record date.
40
What is the record date for the distribution? . . .
How will the combination of JBG SMITH with
the JBG Included Assets work? . . . . . . . . . . .
When will the distribution and the combination
occur? . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What do shareholders need to do to participate
in the distribution? . . . . . . . . . . . . . . . . . . .
How will JBG SMITH common shares be
issued? . . . . . . . . . . . . . . . . . . . . . . . . . . .
The record date for the distribution by Vornado will
be the close of business on
.
At 12:01 a.m. on the business day following the
distribution, JBG will contribute the JBG Included
Assets to JBG SMITH in a series of contribution and
merger transactions, as described more fully in this
information statement under ‘‘The Separation and the
Combination—The Combination.’’
It is expected that Vornado will distribute all of the
outstanding JBG SMITH common shares on
to holders of record of Vornado
common shares on the record date. At 12:01 a.m. on
the following business day, JBG SMITH will combine
with the JBG Included Assets in a series of
contribution and merger transactions, as described
more fully in this information statement under ‘‘The
Separation and the Combination—The Combination.’’
Vornado common shareholders as of the record date
will not be required to take any action to receive JBG
SMITH common shares in the distribution by
Vornado, but you are urged to read this entire
information statement carefully. No shareholder
approval of the distribution by Vornado is required.
You are not being asked for a proxy. You do not need
to pay any consideration, exchange or surrender your
existing Vornado common shares or take any other
action to receive your JBG SMITH common shares.
Please do not send in your Vornado share certificates.
The distribution will not affect the number of
outstanding Vornado common shares or any rights of
Vornado common shareholders, although it will affect
the market value of each outstanding Vornado
common share.
You will receive JBG SMITH common shares through
the same channels that you currently use to hold or
trade Vornado common shares, whether through a
brokerage account, 401(k) plan or other channel.
Receipt of JBG SMITH common shares will be
documented for you in the same manner that you
typically receive shareholder updates, such as monthly
broker statements and 401(k) statements.
41
If you own Vornado common shares as of the close of
business on the record date, including shares owned in
certificated form, Vornado, with the assistance of
American Stock Transfer & Trust Company, LLC, the
settlement and distribution agent, will electronically
distribute JBG SMITH common shares to you or to
your brokerage firm on your behalf in book-entry
form. American Stock Transfer & Trust Company,
LLC will mail you a book-entry account statement
that reflects your JBG SMITH common shares, or
your bank or brokerage firm will credit your account
for the shares. Following the distribution, shareholders
whose shares are held in book-entry form may request
that their JBG SMITH common shares held in
book-entry form be transferred to a brokerage or
other account at any time, without charge.
How many JBG SMITH common shares will I
receive in the distribution? . . . . . . . . . . . . . .
Will JBG SMITH issue fractional shares in the
distribution? . . . . . . . . . . . . . . . . . . . . . . .
Vornado will distribute to you one JBG SMITH
common share for every two Vornado common shares
held by you as of the record date. Based on
approximately 189.4 million Vornado common shares
outstanding as of May 31, 2017, a total of
approximately 94.7 million JBG SMITH common
shares will be distributed. For additional information
on the distribution, please refer to ‘‘The Separation
and the Combination.’’
No. JBG SMITH will not issue fractional shares in the
distribution. Fractional shares that Vornado common
shareholders would otherwise have been entitled to
receive will be aggregated and sold in the public
market by the distribution agent following the
distribution. The aggregate net cash proceeds of these
sales will be distributed pro rata (based on the
fractional share such holder would otherwise be
entitled to receive) to those common shareholders
who would otherwise have been entitled to receive
fractional shares, and will be taxable upon receipt for
U.S. federal income tax purposes to Vornado common
shareholders to the extent described under ‘‘The
Separation and the Combination—Material U.S.
Federal Income Tax Consequences of the Distribution
to U.S. Holders of Vornado Common Shares.’’
Receipts of cash in lieu of any fractional shares will
not be entitled to any interest on the amounts of
payment made in lieu of fractional shares.
42
Will JBG SMITH incur or assume indebtedness
in connection with the separation and the
combination? . . . . . . . . . . . . . . . . . . . . . . .
What are the conditions to the separation and
the combination? . . . . . . . . . . . . . . . . . . . .
Yes. JBG SMITH will assume existing property-level
indebtedness with respect to the Included Assets.
Also, pursuant to the MTA, Vornado and JBG are
cooperating to arrange a credit facility for JBG
SMITH on or immediately prior to the combination.
The credit facility is expected to provide borrowing
capacity of $1.4 billion.
The separation and the combination is subject to a
number of conditions:
Conditions to each party’s obligation to consummate the
separation and the combination, including, among
others:
• The JBG SMITH common shares to be distributed
shall have been accepted for listing on the NYSE,
subject to official notice of distribution;
• No law shall have been enacted or promulgated by
any governmental entity of competent jurisdiction
which prohibits or makes illegal the consummation
of the separation, the distributions by Vornado and
VRLP or the combination;
• Any required waiting periods under any provision of
the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and any other federal or state antitrust law
shall have expired, been waived or been terminated;
• The SEC shall have declared effective the
registration statement on Form 10 of which this
information statement forms a part, and such
registration statement shall not be subject to any
stop order or proceeding seeking a stop order; and
• No more than 40% of the JBG Included Properties
and no more than 20% of the Vornado Included
Properties (each percentage based on the initial
asset values agreed to by the parties in the MTA)
shall be designated as ‘‘Kickout Interests’’ (and
therefore prevented from being transferred to JBG
SMITH) pursuant to the terms of the MTA (see
‘‘The Separation and the Combination—The
Combination—The MTA—Kickout Interests’’
beginning on page 254 for more information on
Kickout Interests).
43
Conditions to the obligation of the Vornado Parties to
consummate the separation and the combination,
including, among others:
• The receipt by Vornado and JBG SMITH of an
opinion of Hogan Lovells US LLP, REIT counsel to
JBG, with respect to each REIT that is being
contributed to JBG SMITH by JBG in the
combination, on which Sullivan & Cromwell LLP,
REIT counsel to Vornado, and, following the
combination, JBG SMITH and its REIT counsel,
shall be entitled to rely, to the effect that each such
REIT has been organized and operated in
conformity with the requirements for qualification
and taxation as a REIT under the Code;
• The receipt by Vornado and JBG SMITH of an
opinion of Sullivan & Cromwell LLP to the effect
that JBG SMITH will be organized and operated in
conformity with the requirements for qualification
and taxation as a REIT under the Code and that its
proposed method of operation will enable it to
continue to meet such requirements;
• The receipt by Vornado of an opinion of Sullivan &
Cromwell LLP, satisfactory to the Vornado board of
trustees, to the effect that the distribution by
Vornado, together with certain related transactions,
will qualify as a transaction that is generally tax-free
for U.S. federal income tax purposes under
Sections 368(a)(1)(D) and 355 of the Code; and
• Certain key individuals shall have remained
employed by the JBG Parties through the date of
the consummation of the combination, and shall not
have repudiated their employment agreements
entered into with JBG SMITH prior to the
consummation of the combination.
Conditions to the obligation of the JBG Parties to
consummate the separation and the combination,
including, among others:
• The receipt by JBG and JBG SMITH of a written
opinion of Sullivan & Cromwell LLP, REIT counsel
to Vornado, with respect to Vornado and to each
REIT that is being contributed by VRLP to JBG
SMITH LP, on which Hogan Lovells US LLP, REIT
counsel to JBG, and, following the combination,
JBG SMITH and its REIT counsel, shall be entitled
to rely, to the effect that Vornado and each such
REIT have been organized and operated in
conformity with the requirements for qualification
and taxation as a REIT under the Code; and
44
• The receipt by JBG and JBG SMITH of a written
opinion of Hogan Lovells US LLP, REIT counsel to
JBG, to the effect that JBG SMITH will be
organized and operated in conformity with the
requirements for qualification and taxation as a
REIT under the Code and its proposed method of
operation will enable it to continue to meet such
requirements.
Vornado and JBG SMITH cannot assure you that any
or all of these conditions will be met. In addition,
Vornado and JBG may, under certain circumstances,
decide not to go forward with the separation and the
combination. For a complete discussion of all of the
conditions to the separation and the combination,
please refer to ‘‘The Separation and the
Combination—Conditions to the Separation and the
Combination.’’
What is the expected date of completion of the
separation and the combination? . . . . . . . . . .
Can Vornado decide to cancel the separation, the
distribution of JBG SMITH common shares
by Vornado, and the combination with the
JBG Included Assets, even if all the conditions
have been met? . . . . . . . . . . . . . . . . . . . . . .
The completion and timing of the separation and the
combination are dependent upon a number of
conditions. It is expected that Vornado will distribute
its JBG SMITH common shares on
to
the holders of record of Vornado common shares at
the close of business on the record date. It is expected
that, at 12:01 a.m. on the business day after the
separation, JBG SMITH will combine with the JBG
Included Assets in a series of contribution and merger
transactions, as described more fully in this
information statement under ‘‘The Separation and the
Combination—The Combination’’. However, no
assurance can be provided as to the timing of the
separation and the combination or that all conditions
to the separation and the combination will be met.
No. The separation, the distribution by Vornado and
the combination are subject to the satisfaction or
waiver of certain conditions. Please refer to ‘‘The
Separation and the Combination—The Combination—
The MTA—Conditions to the Separation and the
Combination.’’ Once all of the conditions have been
satisfied, Vornado does not have the right to
terminate the separation, the distribution and the
combination without the prior written consent of the
JBG Parties.
45
What if I want to sell my Vornado common
shares or my JBG SMITH common shares? . .
What is ‘‘regular-way’’ and ‘‘ex-distribution’’
trading of Vornado common shares? . . . . . . .
You should consult with your financial advisors, such
as your stockbroker, bank or tax advisor.
Beginning on or shortly before the record date and
continuing up to and through the distribution date, it
is expected that there will be two markets in Vornado
common shares: a ‘‘regular-way’’ market and an
‘‘ex-distribution’’ market. Vornado common shares
that trade in the ‘‘regular-way’’ market will trade with
an entitlement to JBG SMITH common shares
distributed pursuant to the distribution by Vornado.
Shares that trade in the ‘‘ex-distribution’’ market will
trade without an entitlement to JBG SMITH common
shares distributed pursuant to the distribution by
Vornado.
If you decide to sell any Vornado common shares
before the distribution date, you should make sure
your stockbroker, bank or other nominee understands
whether you want to sell your Vornado common
shares with or without your entitlement to JBG
SMITH common shares pursuant to the distribution
by Vornado.
Where will I be able to trade JBG SMITH
common shares? . . . . . . . . . . . . . . . . . . . . .
What will happen to the listing of Vornado
shares? . . . . . . . . . . . . . . . . . . . . . . . . . . .
Will the number of Vornado common shares that
I own change as a result of the distribution? . .
JBG SMITH’s common shares have been accepted for
listing on the NYSE under the symbol ‘‘JBGS’’,
subject to official notice of distribution. JBG SMITH
anticipates that trading in its common shares will
begin on a ‘‘when-issued’’ basis on or shortly before
the record date and will continue up to and through
the distribution date and that ‘‘regular-way’’ trading in
JBG SMITH common shares will begin on the first
trading day following the completion of the
separation. If trading begins on a ‘‘when-issued’’ basis,
you may purchase or sell JBG SMITH common shares
up to and through the distribution date, but your
transaction will not settle until after the distribution
date. JBG SMITH cannot predict the trading prices
for its common shares before, on or after the
distribution date.
Vornado’s common shares will continue to trade on
the NYSE after the distribution under the symbol
‘‘VNO.’’
No. The number of Vornado common shares that you
own will not change as a result of the distribution.
46
Will the distribution affect the market price of
my Vornado shares? . . . . . . . . . . . . . . . . . .
How will the number of JBG SMITH common
shares and JBG SMITH LP common limited
partnership units to be issued to JBG investors
in the combination be determined? . . . . . . . .
Yes. As a result of the distribution, Vornado expects
the trading price of Vornado common shares
immediately following the distribution to be lower
than the ‘‘regular-way’’ trading price of such shares
immediately prior to the distribution because the
trading price will no longer reflect the value of
Vornado’s portion of the portfolio held by JBG
SMITH, which will have been spun off in the
separation. Instead, the value of Vornado’s portion of
JBG SMITH’s portfolio will be reflected in the
trading price of the JBG SMITH common shares to
be received by Vornado common shareholders in the
distribution. Furthermore, until the market has fully
analyzed the value of Vornado without the JBG
SMITH portfolio, the trading price of Vornado
common shares may fluctuate. Vornado believes that,
over time following the separation, assuming the same
market conditions and the realization of the expected
benefits of the separation, the Vornado common
shares and the JBG SMITH common shares should
have a higher aggregate market value as compared to
what the market value of Vornado common shares
would be if the separation did not occur. There can
be no assurance, however, that such a higher
aggregate market value will be achieved. It is possible
that, after the separation, the combined equity value
of Vornado and JBG SMITH will be less than
Vornado’s equity value before the separation.
In consideration of the contribution by the JBG
Parties of their management business and the other
JBG Included Assets, the applicable JBG Party or
certain direct and indirect owners of such JBG Party
(which we refer to as the JBG designees) will receive
from JBG SMITH and JBG SMITH LP, as applicable,
in a private placement satisfying the requirements of
Regulation D, a number of JBG SMITH common
shares and/or JBG SMITH LP common limited
partnership units to be determined in accordance with
a formula set forth in the MTA, as described in more
detail under ‘‘The Separation and the Combination—
The Combination—The MTA—Consideration’’
beginning on page 252.
47
How will the value of the Vornado Included
Properties and the JBG Included Properties be
determined for purposes of the MTA? . . . . . .
What are the material U.S. federal income tax
consequences of the separation, the
distribution and the combination? . . . . . . . . .
The parties to the MTA agreed on the equity value of
each of the Vornado Included Assets and the JBG
Included Assets when the MTA was executed, but the
equity values are subject to certain upward or
downward adjustments as set forth in the MTA. These
adjustments include, among other things, (i) increasing
such equity value by amounts actually paid prior to
the revaluation time by Vornado or the JBG Parties,
as applicable, on account of certain leasing costs,
capital expenditures, certain debt amortizations and
paydowns, certain acquisition and development costs
and any positive net working capital balance with
respect to such property and (ii) decreasing such
equity value by the amount of certain leasing costs not
yet paid as of the revaluation time pursuant to leases
included as part of the initial asset value in the MTA
with respect to such property, new indebtedness,
certain debt prepayment fees and any negative net
working capital balance. The ‘‘revaluation time’’ will
be 11:59 p.m. Eastern time on the last day of the
calendar month in which all of the conditions to
consummation of the separation and the combination
have been satisfied or waived (unless such conditions
are satisfied or waived in the last five days of a
calendar month, in which case the revaluation time
will be 11:59 p.m. Eastern time on the last day of the
following calendar month).
It is a condition to the completion of the separation,
the distribution and the combination that Vornado
obtain an opinion of Sullivan & Cromwell LLP,
satisfactory to the Vornado board of trustees, to the
effect that the distribution by Vornado, together with
certain related transactions, will qualify as a
transaction that is generally tax-free for U.S. federal
income tax purposes under Sections 368(a)(1)(D) and
355 of the Code. Assuming that the distribution,
together with certain related transactions, so qualifies,
you will not recognize any gain or loss, and no
amount will be included in your income, upon your
receipt of JBG SMITH common shares pursuant to
the distribution, except with respect to any cash
received in lieu of fractional JBG SMITH common
shares.
48
You should consult your tax advisor as to the
particular consequences of the distribution to you,
including the applicability and effect of any U.S.
federal, state and local tax laws, as well as foreign tax
laws, which may result in the distribution being
taxable to you. For more information regarding the
tax opinion and certain U.S. federal income tax
consequences of the separation, please refer to the
discussion under ‘‘The Separation and the
Combination—Material U.S. Federal Income Tax
Consequences of the Distribution to U.S. Holders of
Vornado Common Shares.’’
Will Vornado or JBG SMITH be required to
make any tax indemnification payments to the
original Charles E. Smith sellers to Vornado
of the Vornado Included Assets if JBG SMITH
elects to sell one or more of the Vornado
Included Assets after the separation? . . . . . . .
No. Although a taxable sale by Vornado of the
Vornado Included Assets prior to 2022 would likely
have required an indemnification payment to the
original Charles E. Smith sellers, including to entities
controlled by Robert E. Kogod, a trustee of Vornado,
as a result of the separation (i) a sale by JBG SMITH
of any of those assets after the spin-off will not result
in any indemnification payments by JBG SMITH or
Vornado and (ii) if there is a future sale of any
Vornado Included Asset in a taxable transaction, the
unamortized built-in gain attributable to that asset will
be allocable to all JBG SMITH shareholders and
certain JBG SMITH LP unit holders rather than
solely to the original Charles E. Smith sellers.
49
What will JBG SMITH’s relationship be with
Vornado following the separation? . . . . . . . . .
Following the separation, JBG SMITH and Vornado
will be separate publicly traded companies, each with
its own board of trustees and management team. In
order to effect the separation and provide a
framework for JBG SMITH’s relationship with
Vornado after the separation, JBG SMITH will enter
into the Separation Agreement and various other
agreements with Vornado, such as a Transition
Services Agreement, a Tax Matters Agreement, an
Employee Matters Agreement, certain Cleaning
Services Agreements with a subsidiary of Vornado
with respect to the JBG Included Properties and
Vornado Included Properties, and a Management
Agreement. These agreements will provide for the
allocation between JBG SMITH and Vornado of
Vornado’s assets, liabilities and obligations (including
its assets, employees and tax-related assets and
liabilities) attributable to periods prior to, at and after
our separation from Vornado and will govern certain
relationships between JBG SMITH and Vornado after
the separation.
For additional information regarding the Separation
Agreement and other transaction agreements, please
refer to the sections entitled ‘‘Risk Factors—Risks
Related to the Separation and the Combination’’ and
‘‘Certain Relationships and Related Person
Transactions.’’
Who will serve as trustees of JBG SMITH
following the completion of the separation and
the combination? . . . . . . . . . . . . . . . . . . . .
JBG SMITH will have 12 trustees following the
completion of the separation and the combination.
Steven Roth, Vornado’s Chairman and Chief
Executive Officer, will be Chairman of the board of
trustees of JBG SMITH. Mitchell Schear, President of
Vornado / Charles E. Smith, will also serve as a
trustee. Robert Stewart, a managing partner of JBG,
will be Executive Vice Chairman of the board of
trustees of JBG SMITH. W. Matthew Kelly, a JBG
managing partner who will be Chief Executive Officer
of JBG SMITH, will also serve as a trustee, along
with Michael Glosserman, who is a managing partner
of JBG. The remaining seven trustees will be
independent.
50
How will JBG SMITH’s initial trustees be
chosen? . . . . . . . . . . . . . . . . . . . . . . . . . . .
Each of Vornado and JBG will designate six trustees,
for a total of 12 members of the board of trustees of
JBG SMITH. For a period of two years following the
combination, if any trustee originally designated by
Vornado or the JBG Parties (which we refer to as a
‘‘Vornado Board Designee’’ or ‘‘JBG Board
Designee,’’ respectively) is unable or is unwilling to
serve or is otherwise no longer serving on the board
of trustees, then the remaining Vornado Board
Designees or JBG Board Designees, respectively, will
select a replacement designee reasonably satisfactory
to JBG SMITH’s Corporate Governance and
Nominating Committee, who shall be appointed to fill
the vacancy.
In addition, in connection with the first annual
meeting of JBG SMITH shareholders following the
combination, the board of trustees, subject to the
reasonable exercise of its duties, will take all such
actions as may be necessary to nominate the Vornado
Board Designees and the JBG Board Designees
(including their respective replacement designees, if
any) for election by JBG SMITH’s shareholders and
use no less rigorous efforts to cause the election of
the such Vornado Board Designees and JBG Board
Designees (including their respective replacement
designees, if any) than the manner in which it
supports other nominees for the board of trustees.
Who will manage JBG SMITH after the
separation and the combination? . . . . . . . . . .
Steven Roth, Vornado’s Chairman and Chief
Executive Officer, will be JBG SMITH’s Chairman of
the board of trustees. W. Matthew Kelly, a managing
partner of JBG, will be Chief Executive Officer of
JBG SMITH and a member of the board of trustees.
Robert Stewart, a managing partner of JBG, will be
Executive Vice Chairman of the board of trustees.
There will also be seven independent trustees. Other
members of JBG management will manage JBG
SMITH after the separation and the combination,
including David Paul as President and Chief
Operating Officer, James Iker as Chief Investment
Officer, and Brian Coulter and Kai Reynolds as
Co-Chief Development Officers. From Vornado,
Stephen W. Theriot will be Chief Financial Officer
and Patrick J. Tyrrell will be Chief Administrative
Officer. For more information regarding JBG
SMITH’s management please refer to ‘‘Management.’’
51
Who will own JBG SMITH following the
combination? . . . . . . . . . . . . . . . . . . . . . . .
Are there risks associated with owning JBG
SMITH common shares? . . . . . . . . . . . . . . .
Does JBG SMITH plan to pay dividends? . . . . .
Immediately following the combination, in total and
taking into account the indirect interests in JBG
SMITH’s assets that are held by the limited partners
of JBG SMITH LP, the economic interests in JBG
SMITH are expected to be owned approximately 73%
by Vornado common shareholders and holders of
VRLP common limited partnership units as of the
record date, 21% by JBG investors as of the date of
the combination, and 6% by current JBG
management, which percentages are subject to change
pursuant to certain closing adjustments set forth in
the MTA. Our management team (excluding Michael
Glosserman, who will be a member of our board of
trustees) is expected to own approximately 5% of the
economic interests in JBG SMITH, which represents
the majority of their collective net worth, and our
management team and board of trustees are expected
to beneficially own or represent approximately 13% of
the economic interests in JBG SMITH.
Yes. Ownership of JBG SMITH common shares is
subject to both general and specific risks relating to
JBG SMITH’s business, the industry in which it
operates, its ongoing contractual relationships with
Vornado and its status as a separate, publicly traded
company. Ownership of JBG SMITH common shares
is also subject to risks relating to the separation.
These risks are described in the ‘‘Risk Factors’’
section of this information statement beginning on
page 60. You are encouraged to read that section
carefully.
We are a newly formed company that has not
commenced operations, and as a result, we have not
paid any dividends as of the date of this information
statement. We expect to distribute 100% of our REIT
taxable income to our shareholders out of assets
legally available therefor. We expect that the cash
required to fund our dividends will be covered by cash
generated from operations and, to the extent they are
not so covered, from our cash on hand. Our dividends
must be authorized by our board of trustees, in its
sole discretion.
52
To qualify as a REIT, we must distribute to our
shareholders an amount at least equal to:
(i)
90% of our REIT taxable income, determined
before the deduction for dividends paid and
excluding any net capital gain (which does not
necessarily equal net income as calculated in
accordance with GAAP); plus
(ii)
90% of the excess of our net income from
foreclosure property over the tax imposed on
such income by the Code; less
(iii)
Any excess non-cash income (as determined
under the Code). Please refer to ‘‘Material U.S.
Federal Income Tax Consequences.’’
Although JBG SMITH currently expects that it will
pay a regular cash dividend, the declaration and
payment of any dividends in the future by JBG
SMITH will be subject to the sole discretion of our
board of trustees and will depend upon many factors.
Please refer to ‘‘Dividend Policy.’’
Who will be the distribution agent, transfer agent
and registrar for the JBG SMITH common
shares? . . . . . . . . . . . . . . . . . . . . . . . . . . .
The distribution agent, transfer agent and registrar for
the JBG SMITH common shares will be American
Stock Transfer & Trust Company, LLC. For questions
relating to the transfer or mechanics of the share
distribution, you should contact:
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
www.astfinancial.com
(800) 937-5449
Where can I find more information about
Vornado and JBG SMITH? . . . . . . . . . . . . .
Before the distribution by Vornado, if you have any
questions, you should contact:
Vornado Realty Trust
210 Route 4 East
Paramus, New Jersey 07652
Attention: Investor Relations
(201) 587-1000
vno.com/investor-relations/stock-info
After the distribution by Vornado, JBG SMITH
shareholders who have any questions relating to JBG
SMITH should contact JBG SMITH at:
JBG SMITH Properties
4445 Willard Avenue, Suite 400
Chevy Chase, Maryland 20815
Attention: Investor Relations
JBG SMITH will maintain a website at
JBGSMITH.com.
53
SUMMARY HISTORICAL COMBINED FINANCIAL DATA
The following tables set forth the summary historical combined financial and other data of JBG
SMITH as it will exist following the separation but prior to the combination, when we will own the
Vornado Included Assets but will not yet have acquired the JBG Included Assets, which was carved out
from the financial information of Vornado as described below. We were formed for the purpose of
receiving, via contribution from Vornado, all of the assets and liabilities of Vornado’s Washington, DC
segment, and combining Vornado’s Washington, DC segment (which operates as Vornado / Charles E.
Smith) and the management business and certain Washington, DC assets of JBG. Prior to the effective
date of the registration statement on Form 10 of which this information statement forms a part, and
the completion of the distributions by each of Vornado and VRLP, we did not conduct any business
and did not have any material assets or liabilities. The selected historical financial data set forth below
as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 has
been derived from our audited combined financial statements, which are included elsewhere in this
information statement. The selected historical financial data set forth below as of December 31, 2014
has been derived from our audited combined financial statements, which are not included in this
information statement. The income statement data for each of the three months ended March 31, 2017
and 2016 and the balance sheet data as of March 31, 2017 have been derived from our unaudited
interim combined financial statements included elsewhere in this information statement. Our unaudited
interim combined financial statements as of March 31, 2017 and for the three months ended March 31,
2017 and 2016 were prepared on the same basis as our audited combined financial statements as of
December 31, 2016 and 2015 and for each of the years ended December 31, 2016, 2015 and 2014 and,
in the opinion of management, include all adjustments, consisting only of normal, recurring
adjustments, necessary to present fairly our financial position and results of operations for these
periods. The interim results of operations are not necessarily indicative of operations for a full fiscal
year.
The accompanying combined financial statements include the accounts of office, multifamily
and other commercial assets aggregating over 15.2 million square feet, with 3,906 multifamily units, and
a future development pipeline with estimated development potential of approximately 10.9 million
square feet located in the Washington, DC metropolitan area, all of which are under common control
of Vornado. The assets and liabilities in these combined financial statements have been carved out of
Vornado’s books and records at their historical carrying amounts. All significant intercompany
transactions have been eliminated.
The historical financial results for the carved out assets reflect charges for certain corporate
costs which we believe are reasonable. These charges were based on either actual costs incurred or a
proportion of costs estimated to be applicable to the Vornado Included Assets based on an analysis of
key metrics, including total revenues. Such costs do not necessarily reflect what the actual costs would
have been if JBG SMITH were operating as a separate standalone public company. These charges are
discussed further in Note 5—Related Party Transactions in our audited combined financial statements
included elsewhere in this information statement.
The accompanying combined financial statements have been prepared on a carve-out basis in
accordance with GAAP. GAAP requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and revenues and expenses during the reporting periods. Actual results
could differ from these estimates.
Subsequent to the transfer of assets to JBG SMITH and the distribution of JBG SMITH’s
common shares to Vornado’s shareholders, JBG SMITH expects to operate in a manner intended to
enable it to qualify as a REIT under Sections 856-860 of the Code. Under those sections, a REIT
which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year
and which meets certain other conditions will not be taxed on that portion of its taxable income which
54
is distributed to its shareholders. Since Vornado operates as a REIT and distributes 100% of taxable
income to its shareholders, no provision for Federal income taxes has been made in the accompanying
combined financial statements. The carved out assets are also subject to certain other taxes, including
state and local taxes which are included in general and administrative expenses in the combined
statements of income.
Presentation of earnings per share information is not applicable in these carved out combined
financial statements, since these assets and liabilities are owned by Vornado.
For purposes of our historical combined financial statements, the Vornado Included Assets
aggregate assets into two reportable segments—office and multifamily—because all of the assets in each
segment have similar economic characteristics and we will provide similar products and services to
similar types of office and multifamily tenants.
As of
March 31,
(Unaudited)
2017
(Audited)
2016
.
.
.
$3,686,203
4,178,065
957,270
$3,660,640
4,155,391
930,769
$3,575,878
4,038,206
908,233
$3,357,744
3,809,213
797,806
.
.
1,161,984
289,590
1,165,014
283,232
1,302,956
82,912
1,277,889
—
.
.
295
2,140,587
295
2,121,984
515
2,059,491
568
1,988,915
(Amounts in thousands)
Balance Sheet Data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate, at cost . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization .
Mortgages payable, net of deferred financing
costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to Vornado . . . . . . . . . . . . . . . . . . .
Noncontrolling interest in consolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . .
(Amounts in thousands)
Income Statement Data:
Total revenues . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . .
Net income attributable to the Vornado
Included Assets . . . . . . . . . . . . . . . . .
Cash Flow Statement Data:
Provided by operating activities . . . . . . .
Used in investing activities . . . . . . . . . .
Provided by (used in) financing activities
(Unaudited)
Three Months Ended
March 31,
2017
2016
As of December 31,
(Audited)
(Audited)
2015
2014
(Audited)
For the Year Ended December 31,
2016
2015
2014
$ 116,272
19,606
$ 116,784
24,276
$ 478,519
112,793
$ 470,607
102,597
$ 472,923
138,619
6,318
11,547
61,974
49,628
81,299
39,601
(30,094)
12,205
57,861
(58,182)
(32,196)
159,541
(256,590)
51,083
178,230
(237,953)
122,671
187,386
(236,923)
33,353
Funds From Operations (‘‘FFO’’)
We calculate FFO in accordance with the definition used by NAREIT. NAREIT defines FFO
as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets,
real estate impairment losses, depreciation and amortization expense from real estate assets and other
specified non-cash items, including the pro rata share of such adjustments of unconsolidated
subsidiaries. Adjusted FFO means FFO as adjusted to exclude non-comparable income and expenses in
each period. We believe FFO and Adjusted FFO are meaningful non-GAAP financial measures useful
in comparing our levered operating performance both internally from period to period and among our
peers because these non-GAAP measures exclude net gains on sales of depreciable real estate, real
55
estate impairment losses, and depreciation and amortization expense which implicitly assumes that the
value of real estate diminishes predictably over time rather than fluctuating based on market
conditions. FFO and adjusted FFO do not represent cash generated from operating activities and are
not necessarily indicative of cash available to fund cash requirements and should not be considered as
an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO and
adjusted FFO may not be comparable to similarly titled measures employed by others.
The following tables reconcile net income attributable to the Vornado Included Assets to FFO
and adjusted FFO for the three months ended March 31, 2017 and 2016 and for the years ended
December 31, 2016, 2015 and 2014.
(Unaudited)
For the
Three Months Ended
March 31,
2017
2016
(Amounts in thousands)
Net income attributable to the Vornado Included Assets . . . . . . . . . . . . . . . . . .
Depreciation and amortization of real property . . . . . . . . . . . . . . . . . . . . . . . . .
$
6,318
35,142
$ 11,547
35,622
FFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,460
47,169
Noncomparable items:
Professional fees associated with the spin-off of the Vornado Included Assets .
5,841
—
Adjusted FFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 47,301
$ 47,169
(Unaudited)
For the Year Ended December 31,
2016
2015
2014
(Amounts in thousands)
Net income attributable to the Vornado Included Assets . . . . . . . . . .
Depreciation and amortization of real property . . . . . . . . . . . . . . . . .
$ 61,974
138,591
$ 49,628
150,708
$ 81,299
117,018
FFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
200,565
200,336
198,317
Noncomparable items:
Professional fees associated with the spin-off of the Vornado
Included Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash impairment loss on an investment . . . . . . . . . . . .
Reversal of deferred income tax liabilities . . . . . . . . . . . . . .
Prepayment penalty on refinancing of RiverHouse . . . . . . . .
Our share of a net gain on sale of land . . . . . . . . . . . . . . . .
.
.
.
.
.
6,476
213
—
—
—
—
405
(745)
640
—
—
—
—
—
(1,800)
Subtotal adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,689
300
(1,800)
Adjusted FFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$207,254
$200,636
56
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$196,517
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table presents summary unaudited pro forma combined financial information
about JBG SMITH’s combined balance sheet and statements of income, and gives effect to both the
separation and the combination. The information under ‘‘Balance Sheet Data’’ below combines the
historical balance sheet of JBG SMITH with the historical combined balance sheets of the Vornado
Included Assets and the JBG Included Assets as of March 31, 2017 and gives effect to the separation
and the combination as if they had been consummated on March 31, 2017. The information under
‘‘Income Statement Data’’ below combines the income statement of JBG SMITH with each of the
Vornado Included Assets and the JBG Included Assets for the three months ended March 31, 2017 and
the year ended December 31, 2016 and gives effect to the separation and the combination as if they
had been consummated on January 1, 2016. This unaudited pro forma combined financial information
was prepared using the acquisition method of accounting with Vornado Included Assets considered the
acquiror of the JBG Included Assets.
The unaudited pro forma combined financial information is presented for illustrative purposes
only and is not necessarily indicative of the financial position or financial results that would have
actually been reported had the separation and the combination occurred on January 1, 2016 or
March 31, 2017, as applicable, nor is it indicative of our future financial position or financial results.
The unaudited pro forma combined financial statements include the results of the carve-out of
the Vornado Included Assets from the financial information of Vornado. The historical financial results
of the Vornado Included Assets reflect charges for certain corporate expenses which include, but are
not limited to, costs related to human resources, security, payroll and benefits, legal, corporate
communications, information services and restructuring and reorganization. Costs of the services that
were allocated or charged to the Vornado Included Assets were based on either actual costs incurred
or a proportion of costs estimated to be applicable to the Vornado Included Assets based on a number
of factors, most significantly, the Vornado Included Assets’ percentage of Vornado’s revenue. We
believe these charges are reasonable; however, these results may not reflect what our expenses would
have been had the Vornado Included Assets been operating as a separate standalone public company.
57
The unaudited pro forma combined financial information should be read in conjunction with
the pro forma combined financial statements and the combined financial statements and related notes
thereto contained elsewhere in this information statement.
As of
March 31,
2017
(Unaudited)
(Amounts in thousands)
Balance Sheet Data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate, at cost . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . .
Mortgages payable, net of deferred financing costs .
Payable to Vornado(1) . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest in JBG SMITH LP . . . . . .
Noncontrolling interest in consolidated subsidiaries
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
.
.
.
.
.
.
.
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.
.
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.
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.
.
.
.
.
.
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.
.
.
.
.
.
.
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.
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.
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.
.
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.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$6,315,818
5,872,761
957,270
2,059,515
—
566,777
4,153
3,929,082
The mortgage for the Bowen Building ($115,630 principal balance and $1,639 accrued interest) will be
assigned to JBG SMITH and the note will be repaid with new financing proceeds from JBG SMITH.
(Amounts in thousands)
Income Statement Data:
Total revenues . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to shareholders
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
58
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Three Months
Ended
March 31,
2017
(Unaudited)
Year Ended
December 31,
2016
(Unaudited)
$159,236
14,342
(10,055)
(8,650)
$652,728
68,555
(39,396)
(33,891)
RISK FACTORS
You should carefully consider the following risks and other information in this information
statement in evaluating our company and our common shares. The occurrence of any of the following risks
could materially and adversely affect our business, prospects, financial condition, results of operations and
cash flow. Some statements in this information statement, including statements in the following risk factors,
constitute forward-looking statements. Please refer to the section entitled ‘‘Cautionary Statement Concerning
Forward-Looking Statements’’ for additional information regarding these forward-looking statements.
Risks Related to Our Business and Operations
Our portfolio of assets is geographically concentrated in the Washington, DC metropolitan area, which makes
us more susceptible to regional and local adverse economic and other conditions than if we owned a more
geographically diverse portfolio.
All of our assets are located in the Washington, DC metropolitan area. As a result, we are
particularly susceptible to adverse economic or other conditions in this market (such as periods of
economic slowdown or recession, business layoffs or downsizing, industry slowdowns, relocations of
businesses, increases in real estate and other taxes, and the cost of complying with governmental
regulations or increased regulation), as well as to natural disasters (including earthquakes, storms and
hurricanes), potentially adverse effects of ‘‘global warming’’ and other disruptions that occur in this
market (such as terrorist activity or threats of terrorist activity and other events), any of which may
have a greater impact on the value of our assets or on our operating results than if we owned a more
geographically diverse portfolio. This market experienced an economic downturn in recent years. A
similar or worse economic downturn in the future could materially and adversely affect our financial
condition, results of operations, cash flow, per share trading price of our common shares and ability to
make distributions to our shareholders.
We cannot assure you that this market will grow or that underlying real estate fundamentals
will be favorable to owners, operators and developers of office, multifamily or retail assets or future
development assets. Our operations may also be affected if competing assets are built in this market.
Moreover, submarkets within our core market may be dependent upon a limited number of industries.
Any adverse economic or other conditions in the Washington, DC metropolitan area, or any decrease
in demand for office, multifamily or retail assets could adversely impact our financial condition, results
of operations, cash flow, per share trading price of our common shares and ability to make
distributions to our shareholders.
Our assets and our property development market are dependent on a metropolitan economy that is heavily
reliant on actual and anticipated federal government spending, and any actual or anticipated curtailment of
such spending could have a material adverse effect on our financial condition, results of operations, cash flow,
per share trading price of our common shares and ability to make distributions to our shareholders.
The real estate and property development market in the Washington, DC metropolitan area is
heavily dependent upon actual and anticipated government spending, and the professional services and
other industries that support the federal government. Any actual or anticipated curtailment of
government spending, whether due to an actual or potential change of presidential administration or
control of Congress, anticipation of federal government sequestrations, furloughs or shutdowns, a
slowdown of the U.S. and/or global economy or other factors, could have an adverse impact on real
estate values and property development in the Washington, DC metropolitan area, on demand and
willingness to enter into long-term contracts for office space by the federal government and companies
dependent upon the federal government, as well as on occupancy rates and annualized rents of
multifamily and retail assets by occupants or patrons whose employment is by or related to the federal
government. For example, sequestration, which mainly impacted government contractors and federal
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government agencies, resulted in a large decrease in federal government spending, and the
implementation of BRAC, which shifted Department of Defense real estate from leased space to
owned bases, contributed to 5.2 million square feet of occupancy losses in the Washington, DC
metropolitan area from 2012 through 2014, mainly in Northern Virginia. Similar curtailments in federal
spending or changes in federal leasing policy could occur in the future, which could have a material
adverse effect on our financial condition, results of operations, cash flow, per share trading price of our
common shares and ability to make distributions to our shareholders.
We derive a significant portion of our revenues from U.S. federal government tenants.
As of March 31, 2017, approximately 22.3% of our share of annualized rent from our office
and retail leases in our operating portfolio were generated by rentals to U.S. federal government
tenants. The occurrence of events that have a negative impact on the demand for federal government
office space, such as a decrease in federal government payrolls or a change in policy that prevents
governmental tenants from renting our office space, would have a much larger adverse effect on our
revenues than a corresponding occurrence affecting other categories of tenants. If the revenues
generated by U.S. federal government tenants were to decline substantially, our financial condition,
results of operations, cash flow, per share trading price of our common shares and ability to make
distributions to our shareholders could be negatively impacted in a material fashion.
We may face additional risks and costs associated with directly managing assets occupied by government
tenants.
We currently own 26 assets in which some or all of the tenants are federal government
agencies. As such, lease agreements with these federal government agencies contain certain provisions
required by federal law, which require, among other things, that the contractor (which is the lessor or
the owner of the property), agree to comply with certain rules and regulations, including, but not
limited to, rules and regulations related to anti-kickback procedures, examination of records, audits and
records, equal opportunity provisions, prohibition against segregated facilities, certain executive orders,
subcontractor cost or pricing data, and certain provisions intending to assist small businesses. Through
one of our wholly owned subsidiaries, we directly manage assets with federal government agency
tenants and, therefore, we are subject to additional risks associated with compliance with all such
federal rules and regulations. In addition, there are certain additional requirements relating to the
potential application of certain equal opportunity provisions and the related requirement to prepare
written affirmative action plans applicable to government contractors and subcontractors. Some of the
factors used to determine whether such requirements apply to a company that is affiliated with the
actual government contractor (the legal entity that is the lessor under a lease with a federal
government agency) include whether such company and the government contractor are under common
ownership, have common management, and are under common control. As a result of the separation,
the distribution and the combination, we will own the entity that is the government contractor and the
property manager, increasing the risk that requirements of the Employment Standards Administration’s
Office of Federal Contract Compliance Programs and requirements to prepare affirmative action plans
pursuant to the applicable executive order may be determined to be applicable to us.
Capital markets and economic conditions can materially affect our liquidity, financial condition and results of
operations, as well as the value of our debt and equity securities.
There are many factors that can affect the value of our equity securities and any debt securities
we may issue in the future, including the state of the capital markets and the economy. Demand for
office space may decline nationwide as it did in 2008 and 2009, due to an economic downturn,
bankruptcies, downsizing, layoffs and cost cutting. Government action or inaction may adversely affect
the state of the capital markets. The cost and availability of credit may be adversely affected by illiquid
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credit markets and wider credit spreads, which may adversely affect our liquidity and financial
condition, including our results of operations, and the liquidity and financial condition of our tenants.
Our inability or the inability of our tenants to timely refinance maturing liabilities and access the
capital markets to meet liquidity needs may materially affect our financial condition and results of
operations and the value of our equity securities and any debt securities we may issue in the future.
We may acquire, develop or redevelop real estate and acquire related companies and this may create risks.
We may acquire, develop or redevelop assets or acquire real estate related companies when we
believe doing so is consistent with our business strategy. We may not succeed in (i) developing,
redeveloping or acquiring real estate and real estate related companies; (ii) completing these activities
on time or within budget; and (iii) leasing or selling developed, redeveloped or acquired assets at
amounts sufficient to cover our costs. Competition in these activities could also significantly increase
our costs. Difficulties in integrating acquisitions may prove costly or time-consuming and could divert
management’s attention. Acquisitions or developments in new markets or types of assets where we do
not have the same level of market knowledge may result in weaker than anticipated performance. We
may also abandon acquisition, development or redevelopment opportunities that we have begun
pursuing and consequently fail to recover expenses already incurred. Furthermore, we may be exposed
to the liabilities of assets or companies acquired, some of which we may not be aware of at the time of
acquisition.
Partnership or joint venture investments could be adversely affected by our lack of sole decision-making
authority, our reliance on partners’ or co-venturers’ financial condition and disputes between us and our
partners or co-venturers.
Approximately 30% of our assets measured by total square feet are held through joint ventures
and we expect to co-invest in the future with other third parties through partnerships, joint ventures or
other entities, acquiring noncontrolling interests in or sharing responsibility for managing the affairs of
a property, partnership, joint venture or other entity. Consequently, with respect to any such third-party
arrangement, we would not be in a position to exercise sole decision-making authority regarding the
property, partnership, joint venture or other entity, and may, under certain circumstances, be exposed
to risks not present were a third party not involved, including the possibility that partners or
co-venturers might become bankrupt or fail to fund their share of required capital contributions, and
we may be forced to make contributions to maintain the value of the property. Partners or co-venturers
may have economic or other business interests or goals that are inconsistent with our business interests
or goals and may be in a position to take action or withhold consent contrary to our policies or
objectives. In some instances, partners or co-venturers may have competing interests in our markets
that could create conflict of interest issues. Such investments may also have the potential risk of
impasses on decisions, such as a sale, because neither we nor the partner or co-venturer would have
full control over the partnership or joint venture. We and our respective partners or co-venturers may
each have the right to trigger a buy-sell right or forced sale arrangement, which could cause us to sell
our interest, or acquire our partners’ or co-venturers’ interest, or to sell the underlying asset, either on
unfavorable terms or at a time when we otherwise would not have initiated such a transaction. In
addition, a sale or transfer by us to a third party of our interests in the partnership or joint venture
may be subject to consent rights or rights of first refusal in favor of our partners or co-venturers, which
would in each case restrict our ability to dispose of our interest in the partnership or joint venture.
Where we are a limited partner or non-managing member in any partnership or limited liability
company, if such entity takes or expects to take actions that could jeopardize our status as a REIT or
require us to pay tax, we may be forced to dispose of our interest in such entity. Disputes between us
and partners or co-venturers may result in litigation or arbitration that would increase our expenses and
prevent our officers and/or trustees from focusing their time and effort on our business. Consequently,
actions by or disputes with partners or co-venturers might result in subjecting assets owned by the
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partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable
for the actions of our third-party partners or co-venturers. Our joint ventures may be subject to debt
and the refinancing of such debt may require equity capital calls. We will review the qualifications and
previous experience of any partners and co-venturers, although we may not obtain financial information
from, or undertake independent investigations with respect to, prospective partners or co-venturers. To
the extent our partners and co-venturers do not meet their obligations to us or our partnerships or
joint ventures or they take action inconsistent with the interests of the partnership or joint venture, we
may be adversely affected.
We may be unable to renew leases, lease vacant space or re-let space as leases expire (particularly at our
Crystal City assets, which have a number of scheduled lease expirations in the near-term), which could
adversely affect our financial condition, results of operations, cash flow, per share trading price of our
common shares and ability to make distributions to our shareholders.
As of March 31, 2017, leases representing 7% of our share of the office and retail square
footage in our operating portfolio will expire by the end of 2017 and 15% of our share of the square
footage of the assets in our office and other portfolios was unoccupied and not generating rent. We
cannot assure you that expiring leases, particularly those at our Crystal City assets, which have a
number of scheduled lease expirations in the near-term will be renewed or that our assets will be re-let
at rental rates equal to or above current average rental rates or that substantial free rent, tenant
improvements, early termination rights or below-market renewal options will not be offered to attract
new tenants or retain existing tenants. In addition, our ability to lease our multifamily assets at
favorable rates, or at all, may be adversely affected by any increase in supply and/or deterioration in
the multifamily market, is dependent upon the overall level of spending in the economy, which is
adversely affected by, among other things, job losses and unemployment levels, recession, personal debt
levels, housing market conditions, stock market volatility and uncertainty about the future. If the rental
rates for our assets decrease, our existing tenants do not renew their leases or we do not re-let a
significant portion of our available space and space for which leases will expire, our financial condition,
results of operations, cash flow, per share trading price of our common shares and ability to make
distributions to our shareholders could be adversely affected.
We depend on major tenants in our office portfolio, and the bankruptcy, insolvency or inability to pay rent of
any of these tenants could have an adverse effect on our financial condition, results of operations, cash flow,
per share trading price of our common shares and ability to make distributions to our shareholders.
As of March 31, 2017, the 20 largest office and retail tenants in our operating portfolio
represented approximately 49.3% of our share of total annualized office and retail rent. In many cases,
through tenant improvement allowances and other concessions, we have made substantial upfront
investments in leases with our major tenants that we may not be able to recover.
The inability of a major tenant to pay rent, or the bankruptcy or insolvency of a major tenant,
may adversely affect the income produced by our office portfolio. If a tenant becomes bankrupt or
insolvent, federal law may prohibit us from evicting such tenant based solely upon such bankruptcy or
insolvency. In addition, a bankrupt or insolvent tenant may be authorized to reject and terminate its
lease with us. If a lease is rejected by a tenant in bankruptcy, we may have only a general unsecured
claim for damages that is limited in amount and may only be paid to the extent that funds are available
and in the same percentage as is paid to all other holders of unsecured claims. Moreover, any claim
against such tenant for unpaid, future rent would be subject to a statutory cap that might be
substantially less than the remaining rent owed under the lease.
If any of our major tenants were to experience a downturn in its business, or a weakening of
its financial condition resulting in its failure to make timely rental payments or causing it to default
under its lease, we may experience delays in enforcing our rights as landlord and may incur substantial
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costs in protecting our investment. Any such event could have an adverse effect on our financial
condition, results of operations, cash flow, per share trading price of our common shares and ability to
make distributions to our shareholders.
We derive a significant portion of our revenues from five of our assets.
As of March 31, 2017, five of our assets in the aggregate generated approximately 23% of our
share of annualized rent. The occurrence of events that have a negative impact on one or more of
these assets, such as a natural disaster that damages one or more of the assets, would have a much
larger adverse effect on our revenues than a corresponding occurrence affecting a less significant
property. If the revenues generated by one or more of these assets were to decline substantially, our
financial condition, results of operations, cash flow, per share trading price of our common shares and
ability to make distributions to our shareholders could be adversely affected.
We derive most of our revenues from office assets and are subject to risks that affect the businesses of our
office tenants, which are generally financial, legal and other professional firms as well as the U.S. federal
government and defense contractors.
As of March 31, 2017, our 50 operating office assets generated approximately 77% of our share
of annualized rent. As a result, the occurrence of events that have a negative impact on the market for
office space, such as increased unemployment in the Washington, DC metropolitan area, would have a
much larger adverse effect on our revenues than a corresponding occurrence affecting our other
segments. Our office tenants are generally financial, legal and other professional firms, as well as the
U.S. federal government and defense contractors. This means that we are subject to factors that affect
the financial, legal and professional services industries or the federal government generally, including
the state of the economy, stock market volatility, and the level of unemployment. These factors could
adversely affect the financial condition of our office tenants and the willingness of firms to lease space
in our office buildings, which in turn may materially and adversely affect our results of operations,
financial condition and ability to service current debt and to make distributions to our shareholders.
Certain of our retail assets depend on anchor or major tenants to attract shoppers and could be adversely
affected by the loss of, or a store closure by, one or more of these tenants.
Certain of our retail assets are anchored by large, nationally recognized tenants. At any time,
such tenants may experience a downturn in their business that may significantly weaken their financial
condition. As a result, such tenants may fail to comply with their contractual obligations to us, seek
concessions in order to continue operations or declare bankruptcy, any of which could result in the
termination of such tenants’ leases. In addition, certain of our tenants may cease operations while
continuing to pay rent. Moreover, mergers or consolidations among large retail establishments could
result in the closure of existing stores or duplicate or geographically overlapping store locations, which
could include stores at our retail assets.
Loss of, or a store closure by, an anchor or major tenant could decrease customer traffic,
thereby decreasing sales for our other tenants at the applicable retail property. If sales of our other
tenants decrease, they may be unable to pay their minimum rents or expense recovery charges. Such
circumstances may significantly reduce our occupancy level or the rent we receive from our retail
assets, and we may not have the right to re-lease vacated space or we may be unable to re-lease
vacated space at attractive rents or at all. Moreover, in the event of default by a major tenant or
anchor store, we may experience delays and costs in enforcing our rights as landlord to recover
amounts due to us under the terms of our agreements with those parties.
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The occurrence of any of the situations described above, particularly if it involves an anchor or
major tenant with leases in multiple locations, could seriously harm our performance and could
adversely affect the value of the applicable retail property.
We are subject to risks that affect the retail environment generally, such as weakness in the economy,
consumer spending, adverse financial condition of large retail companies and competition from discount and
online retailers, any of which could adversely affect market rents for retail space and the willingness or ability
of retailers to lease space in our retail assets.
A portion of our assets are in the retail real estate market. This means that we are subject to
factors that affect the retail environment generally, as well as the market for retail space. The retail
environment and the market for retail space have previously been, and could again be, adversely
affected by weakness in national, regional and local economies, consumer spending and consumer
confidence, adverse financial condition of some large retailing companies, ongoing consolidation in the
retail sector, excess amount of retail space in a number of markets and increasing competition from
online retailers and other online businesses, discount retailers and outlet malls. Increases in online
consumer spending may significantly affect our retail tenants’ ability to generate sales in their stores. If
we fail to reinvest in and redevelop our assets so as to maintain their attractiveness to retailers and
shoppers, our revenue and profitability may suffer. If retailers or shoppers perceive that shopping at
other venues, online or by phone is more convenient, cost-effective or otherwise more attractive, our
revenues and profitability may also suffer.
Any of the foregoing factors could adversely affect the financial condition of our retail tenants
and the willingness of retailers to lease space in our retail assets, which in turn, could negatively impact
market rents for retail space and, therefore, materially and adversely affect our financial condition,
results of operations, cash flow, per share trading price of our common shares and ability to make
distributions to our shareholders.
We face risks associated with our tenants being designated ‘‘Prohibited Persons’’ by the Office of Foreign
Assets Control.
Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the
United States Department of the Treasury (‘‘OFAC’’) maintains a list of persons designated as terrorists
or who are otherwise blocked or banned (‘‘Prohibited Persons’’) from conducting business or engaging
in transactions in the United States and thereby restricts our doing business with such persons. In
addition, our leases, loans and other agreements may require us to comply with OFAC and related
requirements, and any failure to do so may result in a breach of such agreements. If a tenant or other
party with whom we conduct business is placed on the OFAC list or is otherwise a party with whom we
are prohibited from doing business, we may be required to terminate the lease or other agreement.
Any such termination could result in a loss of revenue or otherwise negatively affect our financial
results and cash flows.
Real estate is a competitive business.
We compete with a large number of property owners and developers, some of which may be
willing to accept lower returns on their investments than we are. Principal factors of competition
include rents charged, attractiveness of location, the quality of the property and breadth and quality of
services provided. Our success depends upon, among other factors, trends of the global, national,
regional and local economies, the financial condition and operating results of current and prospective
tenants and customers, availability and cost of capital, construction and renovation costs, taxes,
governmental regulations, legislation and population and employment trends.
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We depend on leasing space to tenants on economically favorable terms and collecting rent from tenants who
may not be able to pay.
Our financial results depend significantly on leasing space in our assets to tenants on
economically favorable terms. In addition, because a majority of our income is derived from renting
real property, our income, funds available to pay indebtedness and funds available for distribution to
shareholders will decrease if certain of our tenants cannot pay their rent or if we are not able to
maintain occupancy levels on favorable terms. If a tenant does not pay its rent, we might not be able to
enforce our rights as landlord without delays and might incur substantial legal and other costs. During
periods of economic adversity, there may be an increase in the number of tenants that cannot pay their
rent and an increase in vacancy rates.
We may be required to make rent or other concessions and/or significant capital expenditures to improve our
assets in order to retain and attract tenants, which could adversely affect our financial condition, results of
operations, cash flow, per share trading price of our common shares and ability to make distributions to our
shareholders.
We may be required to make rent or other concessions to tenants, accommodate requests for
renovations, build-to-suit remodeling and other improvements or provide additional services to our
tenants. As a result, we may have to make significant capital or other expenditures in order to retain
tenants whose leases expire and to attract new tenants in sufficient numbers. If the necessary capital is
unavailable, we may be unable to make such expenditures. This could result in non-renewals by tenants
upon expiration of their leases and our vacant space remaining untenanted, which could adversely
affect our financial condition, results of operations, cash flow, per share trading price of our common
shares and ability to make distributions to our shareholders.
Affordable housing and tenant protection regulations may limit our ability to increase rents and pass through
new or increased operating expenses to our tenants.
Certain states and municipalities have adopted laws and regulations imposing restrictions on
the timing or amount of rent increases and other tenant protections. Approximately 4% of the units in
our operating multifamily portfolio are designated as affordable housing. In addition, Washington, DC
and Montgomery County, Maryland have laws that require, in certain circumstances, an owner of a
multifamily rental property to allow tenant organizations the option to purchase the building at a
market price if the owner attempts to sell the property. We presently expect to continue operating and
acquiring assets in areas that either are subject to these types of laws or regulations or where such laws
or regulations may be enacted in the future. Such laws and regulations limit our ability to charge
market rents, increase rents, evict tenants or recover increases in our operating expenses and could
make it more difficult for us to dispose of assets in certain circumstances.
Increased competition and increased affordability of residential homes could limit our ability to retain
residents, lease apartment homes and increase or maintain rents at our multifamily assets.
Our multifamily assets compete with numerous housing alternatives in attracting residents,
including other multifamily assets and single-family rental homes, as well as owner-occupied single and
multifamily homes. Competitive housing in a particular area and an increase in the affordability of
owner-occupied single and multifamily homes due to, among other things, affordable housing prices,
oversupply, low mortgage interest rates, and tax incentives and government programs that promote
home ownership, could adversely affect our ability to retain residents, lease apartment homes and
increase or maintain rents at our multifamily assets.
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Our success depends on our senior management team whose continued service is not guaranteed, and the loss
of one or more of these persons could adversely affect our ability to manage our business and to implement
our growth strategies, or could create a negative perception in the capital markets.
Our success and our ability to implement and manage anticipated future growth depend, in
large part, upon the efforts of our senior management team, who have extensive market knowledge and
relationships, and exercise substantial influence over our operational, financing, acquisition and
disposition activity. Members of our senior management team have national or regional industry
reputations that attract business and investment opportunities and assist us in negotiations with lenders,
existing and potential tenants and other industry participants. The loss of services of one or more
members of our senior management team, or our inability to attract and retain similarly qualified
personnel, could adversely affect our business, diminish our investment opportunities and weaken our
relationships with lenders, business partners, existing and prospective tenants and industry participants,
which could adversely affect our financial condition, results of operations, cash flow, per share trading
price of our common shares and ability to make distributions to our shareholders.
The realized and unrealized ‘‘gross leveraged IRRs’’ and ‘‘equity multiples’’ achieved by the JBG Funds are
not necessarily indicative of the future performance of our company, any asset in our portfolio or an
investment in our common shares.
We have presented in this information statement realized and unrealized gross leveraged IRRs
and equity multiples achieved by the JBG Funds as of March 31, 2017. While we believe these financial
metrics may be useful to investors in evaluating the managerial capabilities of the JBG team that will
comprise the executive management of JBG SMITH, they are not necessarily indicative of the future
performance of our company, any asset in our portfolio or an investment in our common shares. In
that regard, they do not include the performance of any of the Vornado Included Assets. In particular,
in considering the historical gross leveraged IRRs and equity multiples presented in this information
statement, you should consider that:
• these metrics are substantially based on investments that the JBG Funds have sold and will
not be included in our portfolio upon completion of the combination;
• our leverage and hedging strategies are expected to differ substantially from those employed
by the JBG Funds;
• the JBG Funds made the initial investment in the realized and unrealized investments and
operated and, in the case of the realized investments, sold them under market conditions
that may differ substantially from current or future market conditions;
• as a REIT, we expect to hold our assets for a longer time period than the JBG Funds have
historically held their assets, which means we would expect, all else being equal, to achieve
lower IRRs than the JBG Funds;
• these metrics are computed on a cash basis and have not been computed in accordance with
GAAP;
• these metrics may not be comparable to similar metrics provided by other companies that
calculate them differently;
• equity multiples do not reflect the length of time the JBG Funds were invested in the
realized investments or have been invested in the unrealized investments; and
• the JBG Funds were not subject to the income, asset and other limitations imposed by the
REIT provisions of the Code under which we will be required to operate.
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In addition, the realized and unrealized gross leveraged IRRs and equity multiples presented in
this information statement do not reflect the impact of carried interests or asset management fees, as
applicable, paid to JBG or cash-based general and administrative expenses that we will incur in the
future in connection with the operation of JBG SMITH. Our general and administrative expenses will
include salaries, wages and equity-based compensation for our employees and other expenses primarily
related to our operations (e.g., legal, insurance, accounting and other expenses related to corporate
governance, periodic SEC reporting and other compliance matters) and will impact the performance of
our company and may impact the per share trading price of our common shares. We can provide no
assurance that we will be able to replicate the performance achieved by the JBG Funds represented by
these financial metrics.
The actual density of our future development pipeline and/or any particular future development parcel may
not be consistent with the estimated potential development density set forth in this information statement.
As of March 31, 2017, we estimate that our 44-asset future development pipeline provided over
22.1 million square feet (18.3 million at our share) of estimated potential development density. We
caution you not to place undue reliance on the potential development density estimates for our future
development pipeline and/or any particular future development parcel because they are based solely on
our estimates, using data currently available to us, and our business plans as of March 31, 2017. The
actual density of our future development pipeline and/or any particular future development parcel may
differ substantially from our estimates based on numerous factors, including our inability to obtain
necessary zoning, land use and other required entitlements, as well as building, occupancy and other
required governmental permits and authorizations, and changes in the entitlement, permitting and
authorization processes that restrict or delay our ability to develop, redevelop or use our future
development pipeline at anticipated density levels. Moreover, we may strategically choose not to
develop, redevelop or use our future development pipeline to its maximum potential development
density or may be unable to do so as a result of factors beyond our control, including our ability to
obtain financing on terms and conditions that we find acceptable, or at all, to fund our development
activities. We can provide no assurance that the actual density of our future development pipeline
and/or any particular future development parcel will be consistent with the estimated potential
development density set forth in this information statement.
We may not be able to realize potential incremental annualized rent from our office, multifamily or other
lease-up opportunities set forth in this information statement.
Based on current market demand in our submarkets and the efforts of our dedicated in-house
leasing teams, we believe we can increase our occupancy and revenue at certain office, multifamily and
retail assets. However, we cannot assure you that we will be able to realize potential incremental
annualized rent from our office, multifamily or other lease-up opportunities. Our ability to increase our
occupancy and revenue at certain office, multifamily and other assets may be adversely affected by an
increase in supply and/or deterioration in the office, multifamily or other markets. In addition, if our
competitors offer space at rental rates below current asking rates or below our in-place rates, we may
experience difficulties attracting new tenants or retaining existing tenants and may be pressured to
reduce our rental rates below those we currently charge or to offer more substantial free rent, tenant
improvements, early termination rights or below-market renewal options in order to attract or retain
tenants. We caution you not to place undue reliance on our belief that we can increase our occupancy
and revenue at certain office, multifamily and retail assets.
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We own assets in the same geographic regions as Vornado and the JBG Funds and may compete for tenants
with Vornado and such JBG Funds.
Although Vornado and the JBG Funds have collectively contributed the majority of their assets
located in the Washington, DC metropolitan area to our company as part of the transaction and may
contribute or sell additional assets to us in the future, we have not and will not acquire all of the assets
of Vornado or the JBG Funds in the Washington, DC metropolitan area. We will therefore own assets
in the same geographic regions as Vornado and the JBG Funds, and, as a result, we may compete for
tenants with Vornado and such JBG Funds. Competition may affect our ability to attract and retain
tenants and may reduce the rental rates we are able to charge, which could adversely affect our results
of operations and cash flow.
Some of our potential losses may not be covered by insurance.
Vornado maintains general liability insurance with limits of $300,000,000 per occurrence and
per property, and all-risk property and rental value insurance coverage with limits of $2.0 billion per
occurrence, with sub-limits for certain perils such as floods and earthquakes on each of Vornado’s
properties. Vornado maintains coverage for terrorism acts with limits of $4.0 billion per occurrence and
in the aggregate, and $2.0 billion per occurrence and in the aggregate for terrorism involving nuclear,
biological, chemical and radiological terrorism events, as defined by the Terrorism Risk Insurance
Program Reauthorization Act, which expires in December 2020. JBG SMITH intends to obtain
appropriate insurance coverage on its own and coverages may differ from those noted above. Also, the
resulting insurance premiums may differ materially from amounts included in the accompanying
combined financial statements. JBG SMITH will be responsible for deductibles and losses in excess of
insurance coverage, which could be material.
JBG SMITH will continue to monitor the state of the insurance market and the scope and
costs of coverage for acts of terrorism. However, we cannot anticipate what coverage will be available
on commercially reasonable terms in the future.
Vornado’s mortgage loans are generally non-recourse and contain customary covenants
requiring adequate insurance coverage. Although we believe that we currently have adequate insurance
coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of
coverage at reasonable costs in the future. If lenders insist on greater coverage than JBG SMITH is
able to obtain, it could adversely affect the ability to finance or refinance the properties.
Compliance or failure to comply with the Americans with Disabilities Act or other safety regulations and
requirements could result in substantial costs.
The Americans with Disabilities Act (‘‘ADA’’) generally requires that public buildings, including
our assets, meet certain federal requirements related to access and use by disabled persons.
Noncompliance could result in the imposition of fines by the federal government or the award of
damages to private litigants and/or legal fees to their counsel. If, under the ADA, we are required to
make substantial alterations and capital expenditures in one or more of our assets, including the
removal of access barriers, it could adversely affect our financial condition and results of operations, as
well as the amount of cash available for distribution to shareholders.
Our assets are subject to various federal, state and local regulatory requirements, such as state
and local fire and life safety requirements. If we fail to comply with these requirements, we could incur
fines or private damage awards. We do not know whether existing requirements will change or whether
compliance with future requirements will require significant unanticipated expenditures that will affect
our cash flow and results of operations.
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Terrorist attacks, such as those of September 11, 2001, may adversely affect the value of our assets and our
ability to generate revenue.
Our assets are located in the Washington, DC metropolitan area, which has been and may be
in the future the target of actual or threatened terrorism activity. As a result, some tenants in this
market may choose to relocate their businesses to other markets or to lower-profile office buildings
within this market that may be perceived to be less likely targets of future terrorist activity. This could
result in an overall decrease in the demand for office space in this market generally or in our assets in
particular, which could increase vacancies in our assets or necessitate that we lease our assets on less
favorable terms or both. In addition, future terrorist attacks in the Washington, DC metropolitan area
could directly or indirectly damage our assets, both physically and financially, or cause losses that
materially exceed our insurance coverage. As a result of the foregoing, the value of our assets and our
ability to generate revenues could decline materially.
Our business and operations would suffer in the event of system failures.
Despite system redundancy, the implementation of security measures and the existence of a
disaster recovery plan for our internal information technology systems, our systems are vulnerable to
damages from any number of sources, including computer viruses, unauthorized access, energy
blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or
accident that causes interruptions in our operations could result in a material disruption to our
business. We may also incur additional costs to remedy damages caused by such disruptions.
The occurrence of cyber incidents, or a deficiency in our cybersecurity, could negatively impact our business
by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or
damage to our business relationships, all of which could negatively impact our financial results.
A cyber incident is considered to be any adverse event that threatens the confidentiality,
integrity, or availability of our information resources. More specifically, a cyber incident is an
intentional attack or an unintentional event that can include unauthorized persons gaining access to
systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on
technology has increased, so have the risks posed to our systems, both internal and those we have
outsourced. Our primary risks that could directly result from the occurrence of a cyber incident are
theft of assets, operational interruption, damage to our relationship with our tenants, and private data
exposure. We have implemented processes, procedures and controls to help mitigate these risks, but
these measures, as well as our increased awareness of a risk of a cyber incident, do not guarantee that
our financial results will not be negatively impacted by such an incident.
We have no operating history as a REIT and may not be able to successfully operate as a REIT.
We have no operating history as a REIT. We cannot assure you that the past experience of our
senior management team will be sufficient to successfully operate our company as a REIT. Upon
completion of the transaction, we will be required to develop and implement control systems and
procedures in order to maintain our qualification as a REIT, and this transition could place a
significant strain on our management systems, infrastructure and other resources. Failure to maintain
our qualification as a REIT would have an adverse effect on our financial condition, results of
operations, cash flow, per share trading price of our common shares and ability to make distributions
to our shareholders.
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Risks Related to the Separation and the Combination
We have no history operating as an independent company, and our historical and pro forma financial
information is not necessarily representative of the results that we would have achieved as a separate, publicly
traded company and may not be a reliable indicator of our future results.
The historical information about us in this information statement refers to our business as
operated by Vornado and the JBG Parties separately from each other. Our historical and pro forma
financial information included in this information statement is derived from the consolidated financial
statements and accounting records of Vornado or Vornado and the JBG Parties, respectively.
Accordingly, the historical and pro forma financial information included in this information statement
does not necessarily reflect the financial condition, results of operations or cash flows that we would
have achieved as a separate, publicly traded company during the periods presented or those that we
will achieve in the future. Factors which could cause our results to differ from those reflected in such
historical and pro forma financial information and which may adversely impact our ability to receive
similar results in the future may include, but are not limited to, the following:
• Prior to the separation, our business has been operated by Vornado or the JBG Parties, as
applicable, as part of its or their broader organization, rather than as an independent
company. Vornado and the JBG Parties performed various management functions for us,
such as accounting, information technology and finance. Following the separation and the
combination, Vornado will provide some of these functions to us, as described in ‘‘Certain
Relationships and Related Person Transactions,’’ and we will provide some of these functions
on our own behalf through the management business we are acquiring from the JBG Parties.
Our historical and pro forma financial results reflect allocations of expenses from Vornado
or the JBG Parties, as applicable, for such functions and may be less than the expenses we
would have incurred had we operated as a separate, publicly traded company. We may need
to make certain investments to replicate or outsource from other providers certain facilities,
systems, infrastructure and personnel previously provided by Vornado. Developing our ability
to operate as a separate, publicly traded company will be costly and may prove difficult. We
may not be able to operate our business efficiently or at comparable costs, and our
profitability may decline;
• Currently, our business is integrated with the other businesses of Vornado or the JBG
Parties, as applicable, and we are able to use Vornado’s and JBG’s size and purchasing
power in procuring various goods and services and shared economies of scope and scale in
costs, employees, vendor relationships and customer relationships. For example, we have
historically been able to take advantage of Vornado’s and JBG’s purchasing power in
technology and services, including information technology, marketing, insurance, treasury
services, property support and the procurement of goods. Although JBG SMITH will enter
into certain transition and other separation-related agreements with Vornado, these
arrangements may not fully capture the benefits we have enjoyed as a result of being
integrated with Vornado or the JBG Parties and may result in us paying higher charges than
in the past for these services. In addition, services provided to us under the Transition
Services Agreement will generally only be provided for up to 24 months, and this may not be
sufficient to meet our needs. As a separate, independent company, we may be unable to
obtain goods and services at the prices and terms obtained prior to the separation and the
combination, which could decrease our overall profitability. As a separate, independent
company, we may also not be as successful in negotiating favorable tax treatments and
credits with governmental entities. Likewise, it may be more difficult for us to attract and
retain desired tenants. This could have an adverse effect on our business, results of
operations and financial condition following the completion of the separation;
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• Generally, our working capital requirements and capital for our general business purposes,
including acquisitions, research and development, and capital expenditures, have historically
been satisfied as part of the company-wide cash management policies of Vornado or the cash
management policies of the JBG Parties, as applicable. Following the separation and the
combination, we may need to obtain additional financing from banks, through public
offerings or private placements of debt or equity securities, strategic relationships or other
arrangements, which may not be on terms as favorable to those obtained by Vornado or the
JBG Parties, and the cost of capital for our business may be higher than Vornado’s or JBG’s
cost of capital prior to the separation; and
• As a separate public company, we will become subject to the reporting requirements of the
Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Act and will be required to
prepare our financial statements according to the rules and regulations required by the SEC.
Upon completion of the transaction, we will be required to develop and implement control
systems and procedures in order to satisfy our periodic and current reporting requirements
under applicable SEC regulations and comply with NYSE listing standards, and this
transition could place a significant strain on our management systems, infrastructure and
other resources. We cannot assure you that the past experience of our senior management
team will be sufficient to successfully operate as a publicly traded company.
Other significant changes may occur in our cost structure, management, financing and business
operations as a result of operating as an independent company. For additional information about the
past financial performance of our business and the basis of presentation of the historical combined
financial statements and the unaudited pro forma combined financial statements of our business, please
refer to ‘‘Unaudited Pro Forma Combined Financial Statements,’’ ‘‘Selected Historical Combined
Financial Data,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’ and the historical financial statements and accompanying notes included elsewhere in this
information statement.
We are dependent on Vornado to provide certain services to us pursuant to the Transition Services Agreement,
and it may be difficult to replace the services provided under such agreement.
Historically, we have relied on Vornado to provide certain financial, administrative and other
support functions to operate our business and we will continue to rely on Vornado for certain of these
services on a transitional basis pursuant to the Transition Services Agreement that we expect to enter
into with Vornado. See ‘‘Certain Relationships and Related Person Transactions—Transition Services
Agreement.’’ In addition, it may be difficult for us to replace the services provided by Vornado under
the Transition Services Agreement, and the terms of any agreements to replace such services may be
less favorable to us. Any failure by Vornado in the performance of such services, or any failure on our
part to successfully transition these services away from Vornado by the expiration of the Transition
Services Agreement, could materially harm our business and financial performance.
If the distribution by Vornado, together with certain related transactions, does not qualify as a transaction that
is generally tax-free for U.S. federal income tax purposes, Vornado and Vornado shareholders could be subject
to significant tax liabilities.
It is a condition to the completion of the separation, the distribution and the combination that
Vornado obtain an opinion of Sullivan & Cromwell LLP, satisfactory to the Vornado board of trustees,
to the effect that the distribution by Vornado, together with certain related transactions, will qualify as
a transaction that is generally tax-free for U.S. federal income tax purposes under
Sections 368(a)(1)(D) and 355 of the Code. The opinion of Sullivan & Cromwell LLP will be based on,
among other things, certain facts and assumptions, as well as certain representations, statements and
undertakings of Vornado and JBG SMITH (including those relating to the past and future conduct of
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Vornado and JBG SMITH). If any of these representations, statements or undertakings are, or become,
inaccurate or incomplete, or if Vornado or JBG SMITH breaches any of its respective covenants in the
MTA or any of the other agreements entered into in connection with the separation, the distribution
and the combination, the opinion of Sullivan & Cromwell LLP may be invalid and the conclusions
reached therein could be jeopardized. Vornado does not intend to request any ruling from the IRS as
to the U.S. federal income tax consequences of the distribution by Vornado. No assurance can be given
that the IRS will not challenge the conclusions reflected herein or in the opinion of Sullivan &
Cromwell LLP or that a court would not sustain such a challenge.
Nonetheless, the IRS could determine that the distribution, together with certain related
transactions, should be treated as a taxable transaction if it determines that any of the representations,
assumptions or undertakings upon which the opinion of Sullivan & Cromwell LLP was based are false or
have been violated, or if it disagrees with the conclusions in the opinion of Sullivan & Cromwell LLP. The
opinion of Sullivan & Cromwell LLP is not binding on the IRS and there can be no assurance that the IRS
will not take a contrary position.
If the distribution, together with certain related transactions, fails to qualify for tax-free
treatment, in general, Vornado would recognize taxable gain as if it had sold the JBG SMITH common
shares in a taxable sale for their fair market value and Vornado shareholders who receive JBG SMITH
common shares in the distribution could be subject to tax as if they had received a taxable distribution
equal to the fair market value of such shares. For more information, please refer to ‘‘The Separation
and the Combination—Material U.S. Federal Income Tax Consequences of the Distribution to U.S.
Holders of Vornado Common Shares.’’
JBG SMITH could be required to indemnify Vornado for certain material tax obligations that could arise as
addressed in the Tax Matters Agreement.
The Tax Matters Agreement that JBG SMITH will enter into with Vornado will provide special
rules that allocate tax liabilities in the event the distribution by Vornado, together with certain related
transactions, is not tax-free. Under the Tax Matters Agreement, JBG SMITH may be required to
indemnify Vornado against any taxes and related amounts and costs resulting from (i) an acquisition of
all or a portion of the equity securities or assets of JBG SMITH, whether by merger or otherwise,
(ii) other actions or failures to act by JBG SMITH, or (iii) any of JBG SMITH’s representations or
undertakings being incorrect or violated. In addition, under the Tax Matters Agreement, JBG SMITH
is liable for any taxes attributable to JBG SMITH and its subsidiaries, unless such taxes are imposed on
JBG SMITH or any of the REITs contributed by Vornado (i) with respect to a period before the
distribution as a result of any action taken by Vornado after the distribution, or (ii) with respect to any
period as a result of Vornado’s failure to qualify as a REIT for the taxable year of Vornado that
includes the distribution. For a more detailed discussion, please refer to ‘‘Certain Relationships and
Related Person Transactions—Tax Matters Agreement.’’
Unless Vornado and JBG SMITH are both REITs immediately after the distribution and at all times during
the two years thereafter, the distribution could be taxable to Vornado and its shareholders or JBG SMITH
could be required to recognize certain corporate-level gains for tax purposes.
Section 355(h) of the Code provides that tax-free treatment will not be available unless, as
relevant here, Vornado and JBG SMITH are both REITs immediately after the distribution.
In addition, the Treasury Department and the IRS recently released temporary Treasury
regulations pursuant to which, subject to certain exceptions, a REIT must recognize corporate-level
gain if it acquires property from a non-REIT ‘‘C’’ corporation in certain so-called ‘‘conversion’’
transactions and engages in a Section 355 transaction within ten years of such conversion. For this
purpose, a conversion transaction refers to the qualification of a non-REIT ‘‘C’’ corporation as a REIT
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or the transfer of property owned by a non-REIT ‘‘C’’ corporation to a REIT. JBG SMITH or its
subsidiaries will have acquired property pursuant to conversion transactions within ten years of the
distribution. One of the exceptions applies to a distribution described in Section 355 of the Code in
which the distributing corporation and the controlled corporation are both REITs immediately after
such distribution and at all times during the two years thereafter.
Each of Vornado and JBG SMITH believes that it qualifies as a REIT and intends to operate
in a manner so that each will so qualify immediately after the distribution and at all times during the
two years after the distribution. If either Vornado or JBG SMITH were to fail to qualify as a REIT
immediately after the distribution of JBG SMITH from Vornado, Section 355(h) of the Code would
cause the distribution and separation to be treated as a taxable transaction to Vornado and its
shareholders. In addition, if either Vornado or JBG SMITH were to fail to qualify as a REIT at any
time during the two years after the distribution, then, for JBG SMITH’s taxable year that includes the
distribution, the IRS may assert that JBG SMITH would have to recognize corporate-level gain on
assets acquired in conversion transactions.
We may not be able to engage in potentially desirable strategic or capital-raising transactions following the
separation. In addition, if we were able to engage in such transactions, we could be liable for adverse tax
consequences resulting therefrom.
To preserve the tax-free treatment of the separation, for the two-year period following the
separation, JBG SMITH will be prohibited, except in specific circumstances, from: (i) entering into any
transaction pursuant to which all or a portion of JBG SMITH’s shares would be acquired, whether by
merger or otherwise, (ii) issuing equity securities beyond certain thresholds and except in certain
circumscribed manners, (iii) repurchasing JBG SMITH common shares, (iv) ceasing to actively conduct
certain of its businesses, or (v) taking or failing to take any other action that prevents the distribution
and certain related transactions from being tax-free.
These restrictions may limit JBG SMITH’s ability to pursue strategic transactions or engage in
new business or other transactions that may maximize the value of JBG SMITH’s business. For more
information, please refer to ‘‘The Separation and the Combination—Material U.S. Federal Income Tax
Consequences of the Distribution to U.S. Holders of Vornado Common Shares’’ and ‘‘Certain
Relationships and Related Person Transactions—Tax Matters Agreement.’’
Potential indemnification liabilities to Vornado pursuant to the Separation Agreement could materially
adversely affect our operations.
The Separation Agreement with Vornado provides for, among other things, the principal
transactions required to effect the separation, certain conditions to the separation and distribution and
provisions governing our relationship with Vornado with respect to and following the separation and
distribution. Among other things, the Separation Agreement provides for indemnification obligations
designed to make us financially responsible for substantially all liabilities that may exist relating to our
business activities, whether incurred prior to or after the separation and distribution, as well as those
obligations of Vornado that we will assume pursuant to the Separation Agreement. If we are required
to indemnify Vornado under the circumstances set forth in this agreement, we may be subject to
substantial liabilities. For a description of this agreement, please refer to ‘‘Certain Relationships and
Related Person Transactions—The Separation Agreement.’’
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Vornado and the JBG Parties may not be able to transfer their respective interests in certain assets that are
subject to certain debt arrangements, are partially owned through a joint venture or similar structure, or are
leased from a third party due to the need to obtain the consent of third parties, or they may not be able to
complete certain actions with respect to certain assets as required by the MTA, which in either case may result
in such assets being excluded from the separation and the combination.
Certain covenants and other restrictions contained in agreements governing indebtedness
secured by certain of our assets and the co-owned or leased nature of some of our assets may require
Vornado or JBG, as applicable, to obtain lender, co-venturer, or landlord consent in order to transfer
such assets to us prior to completion of the separation or the combination, as applicable. There is no
assurance that Vornado or JBG will be able to obtain these consents on terms that they determine to
be reasonable, or at all. In addition, each of Vornado and the JBG Parties is obligated by the MTA to
complete certain actions with respect to certain assets (for example, entering into definitive agreements
to acquire such property or to bifurcate a master ground lease including such property so that such
property is part of its own separate ground lease) before such assets can be transferred to us in the
separation or the combination, as applicable. Failure to obtain the consents described above, or to
complete the actions described above with respect to the assets specified in the MTA, could result in
these assets being deemed to be ‘‘Kickout Interests’’ under the MTA, which would require Vornado or
JBG to retain such assets and could have a material adverse effect on our business, results of
operations and financial condition. Please refer to ‘‘The Separation and the Combination—The
Combination—The MTA—Kickout Interests’’ for more information.
Tenant protection regulations may impede the ability of Vornado and the JBG Parties to transfer certain assets
to us in the separation and the combination, which may result in a decrease in the size of our portfolio.
Washington, DC and Montgomery County, Maryland have laws that require, in certain
circumstances, an owner of a multifamily rental property to allow tenant organizations the option to
purchase the multifamily rental property at a market price if the owner attempts to sell the property.
The separation and the combination may constitute a sale of certain Vornado Included Properties and
JBG Included Properties that are subject to these provisions and thus may require the applicable
property owner to offer the opportunity to purchase such assets to the respective tenants. If the tenants
elect to purchase any of the assets subject to these regulations, such assets will not be contributed to us
in the separation and the combination, and instead the proceeds of such sale will be contributed to us.
There may be undisclosed liabilities of the Vornado Included Assets or the JBG Included Assets that might
expose us to potentially large, unanticipated costs.
Prior to entering into the MTA, each of Vornado and JBG performed diligence with respect to
the business and assets of the other. However, these diligence reviews have necessarily been limited in
nature and scope, and may not have adequately uncovered all of the contingent or undisclosed
liabilities that we are assuming in connection with the separation and the combination, many of which
may not be covered by insurance. Further, the MTA does not provide for indemnification for these
types of liabilities by either party following the closing of the combination, and therefore we may not
have any recourse with respect to such unexpected liabilities. Any such liabilities could cause us to
experience losses, which may be significant, which could materially adversely affect our business, results
of operations and financial condition.
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After the separation and the combination, certain of our trustees and executive officers may have actual or
potential conflicts of interest because of their previous or continuing equity interest in, or positions at,
Vornado or the JBG Parties, as applicable, including members of our senior management, who will continue
to have an ownership interest in the JBG Funds and will continue to own carried interests in each fund and
in certain of our joint ventures that will entitle them to receive additional compensation if the fund or joint
venture achieves certain return thresholds.
Some of our trustees and executive officers will be persons who are or have been employees of
Vornado or the JBG Parties. Because of their current or former positions with Vornado or the JBG
Parties, certain of our expected trustees and executive officers will own Vornado common shares or
other equity awards or equity interests in certain JBG Funds and related entities. Following the
separation and the combination, even though our board of trustees will consist of a majority of trustees
who are independent, some of our executive officers and some of our trustees will continue to have a
financial interest in Vornado common shares or in the JBG Parties or JBG Funds. In addition, one of
our trustees will continue serving on the board of trustees of Vornado. Continued ownership of
Vornado common shares or interests in the JBG Parties or JBG Funds, or service as a trustee or
managing partner, as applicable, at both companies, could create, or appear to create, potential
conflicts of interest.
Certain of the JBG Funds will continue to own assets that are not being contributed to us in
the transaction, which JBG Funds are owned in part by members of our senior management. In
addition, although the asset management and property management fees associated with the JBG
Excluded Assets will be assigned to us upon completion of the transaction, in connection with obtaining
the necessary approvals from the constituent members of the JBG Funds, it was determined that the
general partner and managing member interests in the JBG Funds that are held by current JBG
executives (and who will become members of our management team) would not be transferred to us
and will remain under the control of these individuals. As a result, our management’s time and efforts
may be diverted from the management of our assets to management of the JBG Funds, which could
adversely affect the execution of our business plan and our results of operations and cash flow.
In addition, members of our senior management will continue to have an ownership interest in
the JBG Funds and will continue to own carried interests in each fund and in certain of our joint
ventures that will entitle them to receive additional compensation if the fund or joint venture achieves
certain return thresholds. As a result, members of our senior management could be incentivized to
spend time and effort maximizing the cash flow from the assets being retained by the JBG Funds and
certain joint ventures, particularly through sales of assets, which may accelerate payments of the carried
interest but would reduce the asset management and other fees that would otherwise be payable to us
with respect to the JBG Excluded Assets. These actions could adversely impact our results of
operations and cash flow.
Vornado will not be required to present investments to us that satisfy our investment guidelines before
pursuing such opportunities on Vornado’s behalf.
Our agreements with Vornado will not require Vornado to present to us investment
opportunities that satisfy our investment guidelines before Vornado pursues such opportunities. While
Vornado does not intend to continue to operate within the Washington, DC metropolitan area after the
separation, should it choose to do so Vornado will be free to direct investment opportunities away from
JBG SMITH, and we may be unable to compete with Vornado in pursuing such opportunities.
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We may not achieve some or all of the expected benefits of the separation and the combination, and the
separation and the combination may adversely affect our business.
After consummation of the combination, JBG SMITH will be a new public company with
significantly more revenues, assets and employees than management of the company was responsible
for prior to the combination. The integration process will require JBG SMITH management to devote
a significant amount of time and attention to the process of integrating the operations of the Vornado
Included Assets and the JBG Included Assets. There is a significant degree of difficulty and
management involvement inherent in that process, and the actions required to separate our business
from that of Vornado and to implement the combination could disrupt our operations. In addition,
JBG SMITH will incur certain transaction costs in connection with the separation and the combination,
including our obligation pursuant to the MTA to pay all bona fide third-party expenses (with certain
limited exceptions) incurred by Vornado and JBG in connection therewith. Some of the transaction
costs that we incur may be greater than anticipated, which could adversely affect our available liquidity
and ability to execute our business plan. Furthermore, following the separation and the combination,
we may be more susceptible to market fluctuations and other adverse events than if we were still a part
of Vornado, and our business will be less diversified than Vornado’s business prior to the separation.
As a result, we may not be able to achieve the full strategic and financial benefits expected to result
from the separation and the combination, or such benefits may be delayed due to a variety of
circumstances (not all of which may be under our control), which could have a materially adverse effect
on our business, financial condition and results of operations.
No vote of Vornado shareholders is required in connection with the separation and distribution.
No vote of Vornado shareholders is required in connection with the separation and
distribution. Accordingly, if this transaction occurs and you do not want to receive our common shares
in the distribution, your only recourse will be to divest yourself of your Vornado common shares prior
to the record date for the distribution.
The separation, the distribution and the combination, and related transactions, are subject to the satisfaction
or waiver by Vornado’s board of trustees or by the JBG Parties, in their respective sole discretion, of a
number of conditions. We cannot assure you that any or all of these conditions will be met or that the
separation, the distribution and the combination will be completed in a timely manner or at all.
The consummation of the separation, the distribution and the combination is subject to the
satisfaction or waiver by Vornado’s board of trustees or by the JBG Parties, in their respective sole
discretion, of a number of conditions, and we cannot assure you that any or all of these conditions will
be met. This means that Vornado or the JBG Parties may be able to elect to cancel or delay the
planned separation, the distribution of our common shares and the combination if certain closing
conditions have not been met. For example, if the separation, the distribution and the combination
have not been consummated on or prior to December 29, 2017, then either Vornado or the JBG
Parties may elect to terminate the MTA, which means the separation, the distribution and the
combination will not take place. If Vornado’s board of trustees or the JBG Parties makes a decision to
cancel the separation and the combination, shareholders of Vornado will not receive any distribution of
our common shares, Vornado will be under no obligation whatsoever to its shareholders to distribute
such common shares, and our business will not be combined with the JBG Included Assets.
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In connection with our separation from Vornado, Vornado will indemnify us for certain pre-distribution
liabilities and liabilities related to Vornado assets. However, there can be no assurance that these indemnities
will be sufficient to protect us against the full amount of such liabilities, or that Vornado’s ability to satisfy its
indemnification obligation will not be impaired in the future.
Pursuant to the Separation Agreement, Vornado will agree to indemnify us for certain
liabilities. However, third parties could seek to hold us responsible for any of the liabilities that
Vornado agrees to retain, and there can be no assurance that Vornado will be able to fully satisfy its
indemnification obligations. Moreover, even if we ultimately succeed in recovering from Vornado any
amounts for which we are held liable, such indemnification may be insufficient to fully offset the
financial impact of such liabilities and/or we may be temporarily required to bear these losses while
seeking recovery from Vornado.
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act could have a material adverse effect on our business and share price.
As a public company, we will become subject to the reporting requirements of the Exchange
Act, the Sarbanes-Oxley Act and the Dodd-Frank Act and will be required to prepare our financial
statements according to the rules and regulations required by the SEC. In addition, the Exchange Act
requires that we file annual, quarterly and current reports. Our failure to prepare and disclose this
information in a timely manner or to otherwise comply with applicable law could subject us to penalties
under federal securities laws, expose us to lawsuits and restrict our ability to access financing.
In addition, the Sarbanes-Oxley Act requires that we, among other things, establish and
maintain effective internal controls and procedures for financial reporting and disclosure purposes.
Internal control over financial reporting is complex and may be revised over time to adapt to changes
in our business, or changes in applicable accounting rules. We cannot assure you that our internal
control over financial reporting will be effective in the future or that a material weakness will not be
discovered with respect to a prior period for which we had previously believed that internal controls
were effective. If we are not able to maintain or document effective internal control over financial
reporting, our independent registered public accounting firm will not be able to certify as to the
effectiveness of our internal control over financial reporting.
Matters impacting our internal controls may cause us to be unable to report our financial
information on a timely basis, or may cause our company to restate previously issued financial
information, and thereby subject us to adverse regulatory consequences, including sanctions or
investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a
negative reaction in the financial markets due to a loss of investor confidence in our company and the
reliability of our financial statements. Confidence in the reliability of our financial statements is also
likely to suffer if we or our independent registered public accounting firm report a material weakness
in our internal control over financial reporting. This could materially adversely affect our company by,
for example, leading to a decline in our share price and impairing our ability to raise additional capital.
Substantial sales of our common shares may occur in connection with the distribution and the combination,
which could cause our share price to decline.
The shares that Vornado intends to distribute to its shareholders generally may be sold
immediately in the public market. Upon completion of the distribution, based on the number of
outstanding Vornado common shares as of May 31, 2017, we expect that we will have an aggregate of
approximately 94.7 million common shares issued and outstanding. These shares will be freely tradable
without restriction or further registration under the Securities Act, unless the shares are owned by one
of our ‘‘affiliates,’’ as that term is defined in Rule 405 under the Securities Act. In addition, we expect
to issue approximately 23.8 million additional common shares to JBG investors in the combination, who
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will be permitted to sell the common shares they receive in the combination after a registration
statement for such resales has been declared effective or pursuant to an exemption from the
registration requirements.
Although we have no actual knowledge of any plan or intention on the part of any 5% or
greater shareholder to sell our common shares following the distribution, it is possible that some
shareholders, including possibly some of our large shareholders, will sell our common shares that they
receive in the distribution or the combination. For example, Vornado shareholders may sell our
common shares because our business profile or market capitalization as an independent company does
not fit their investment objectives or because our common shares are not included in certain indices
after the distribution. A portion of Vornado’s shares is held by index funds tied to the Standard &
Poor’s 500 Index or other indices, and if we are not included in these indices at the time of the
distribution, these index funds may be required to sell our common shares. Additionally, JBG investors
who receive common shares in the combination will have liquidity for their investments (unlike with
respect to their equity interests in the JBG Contributing Funds) and may decide to sell their shares to
realize such liquidity. The sales of significant amounts of our common shares, or the perception in the
market that this will occur, may result in the lowering of the market price of our common shares.
Risks Related to Our Indebtedness and Financing
We expect to have a substantial amount of indebtedness, which may limit our financial and operating
activities and expose us to the risk of default under our debt obligations.
Upon completion of the transaction, we anticipate that we will have $2.2 billion aggregate
principal amount of consolidated debt outstanding ($2.2 billion at our share) and our unconsolidated
joint ventures will have over $1.1 billion aggregate principal amount of debt outstanding ($380 million
at our share), resulting in a total of approximately $2.6 billion aggregate principal amount of debt
outstanding at our share. A subset of our outstanding debt will be guaranteed by our operating
partnership, and we may incur significant additional debt to finance future acquisition and development
activities.
Payments of principal and interest on borrowings may leave us with insufficient cash resources
to operate our assets or to pay the dividends currently contemplated or necessary to maintain our
REIT qualification. Our level of debt and the limitations imposed on us by our debt agreements could
have significant adverse consequences, including the following:
• our cash flow may be insufficient to meet our required principal and interest payments;
• we may be unable to borrow additional funds as needed or on favorable terms, which could,
among other things, adversely affect our ability to meet operational needs;
• we may be unable to refinance our indebtedness at maturity or the refinancing terms may be
less favorable than the terms of our original indebtedness;
• we may be forced to dispose of one or more of our assets, possibly on unfavorable terms or
in violation of certain covenants to which we may be subject;
• we may violate restrictive covenants in our loan documents, which would entitle the lenders
to accelerate our debt obligations; and
• our default under any loan with cross-default provisions could result in a default on other
indebtedness.
If any one of these events were to occur, our financial condition, results of operations, cash
flow, per share trading price of our common shares and ability to make distributions to our
shareholders could be adversely affected. Furthermore, foreclosures could create taxable income
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without accompanying cash proceeds, which could hinder our ability to meet the REIT distribution
requirements imposed by the Code.
Our debt agreements include restrictive covenants, requirements to maintain financial ratios and default
provisions, which could limit our flexibility and our ability to make distributions and require us to repay the
indebtedness prior to its maturity.
The mortgages on our assets contain customary negative covenants that, among other things,
limit our ability, without the prior consent of the lender, to further mortgage the property and to
reduce or change insurance coverage. On a pro forma basis, JBG SMITH has approximately
$2.2 billion aggregate principal amount of consolidated debt outstanding ($2.2 billion at our share) and
our unconsolidated joint ventures had over $1.1 billion aggregate principal amount of debt outstanding
($380 million at our share), resulting in a total of approximately $2.6 billion aggregate principal amount
of debt outstanding at our share. We are arranging a $1.4 billion credit facility under which we expect
to have significant borrowing capacity. Additionally, our debt agreements contain customary covenants
that, among other things, restrict our ability to incur additional indebtedness and, in certain instances,
restrict our ability to engage in material asset sales, mergers, consolidations and acquisitions, and
restrict our ability to make capital expenditures. These debt agreements, in some cases, also subject us
to guarantor and liquidity covenants, and the credit facility that we are arranging will, and other future
debt may, require us to maintain various financial ratios. Some of our debt agreements contain certain
cash flow sweep requirements and mandatory escrows, and our property mortgages generally require
certain mandatory prepayments upon disposition of underlying collateral. Our ability to borrow is
subject to compliance with these and other covenants, and failure to comply with our covenants could
cause a default under the applicable debt instrument, and we may then be required to repay such debt
with capital from other sources or give possession of a secured property to the lender. Under those
circumstances, other sources of capital may not be available to us, or may be available only on
unattractive terms.
We may not be able to obtain capital to make investments.
We depend primarily on external financing to fund the growth of our business. This is because
one of the requirements of the Code for a REIT is that it distributes at least 90% of its taxable
income, excluding net capital gains, to its shareholders. There is a separate requirement to distribute
net capital gains or pay a corporate level tax in lieu thereof. Our access to debt or equity financing
depends on the willingness of third parties to lend or make equity investments and on conditions in the
capital markets generally. Although we believe that we will be able to finance any investments we may
wish to make in the foreseeable future, there can be no assurance that new financing will be available
or available on acceptable terms. For information about our available sources of funds, see
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity
and Capital Resources’’ and the notes to the consolidated financial statements in this information
statement.
We may not be permitted to dispose of certain assets or pay down the debt associated with those assets when
we might otherwise desire to do so without incurring additional costs. In addition, when we dispose of or sell
assets, we may not be able to reinvest the sales proceeds and earn similar returns.
As part of an acquisition of a property, or a portfolio of assets, we may agree not to dispose of
the acquired assets or reduce the mortgage indebtedness for a long-term period, unless we pay certain
of the resulting tax costs of the seller. Such an agreement could result in us holding on to assets that
we would otherwise sell and not pay down or refinance the mortgage indebtedness encumbering such
assets. In addition, when we dispose of or sell assets, we may not be able to reinvest the sales proceeds
and earn returns similar to those generated by the assets that were sold.
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Our decision to dispose of real estate assets would change the holding period assumption in our valuation
analyses, which could result in material impairment losses and adversely affect our financial results.
We evaluate real estate assets for impairment based on the projected cash flow of the asset
over our anticipated holding period. If we change our intended holding period, due to our intention to
sell or otherwise dispose of an asset, then under accounting principles generally accepted in the United
States, we must reevaluate whether that asset is impaired. Depending on the carrying value of the
property at the time we change our intention and the amount that we estimate we would receive on
disposal, we may record an impairment loss that would adversely affect our financial results. This loss
could be material to our results of operations in the period that it is recognized.
Risks Related to the Real Estate Industry
Real estate investments’ value and income fluctuate due to various factors.
The value of real estate fluctuates depending on conditions in the general economy and the
real estate business. These conditions may also adversely impact our revenues and cash flows.
The factors that affect the value of our real estate include, among other things:
• global, national, regional and local economic conditions;
• competition from other available space;
• local conditions such as an oversupply of space or a reduction in demand for real estate in
the area;
• how well we manage our assets;
• the development and/or redevelopment of our assets;
• changes in market rental rates;
• the timing and costs associated with property improvements and rentals;
• whether we are able to pass all or portions of any increases in operating costs through to
tenants;
• changes in real estate taxes and other expenses;
• whether tenants and users consider a property attractive;
• the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;
• availability of financing on acceptable terms or at all;
• inflation or deflation;
• fluctuations in interest rates;
• our ability to obtain adequate insurance;
• changes in zoning laws and taxation;
• government regulation;
• consequences of any armed conflict involving, or terrorist attack against, the United States or
individual acts of violence in public spaces;
• potential liability under environmental or other laws or regulations;
• natural disasters;
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• general competitive factors; and
• climate changes.
The rents or sales proceeds we receive and the occupancy levels at our assets may decline as a
result of adverse changes in any of these factors. If rental revenues, sales proceeds and/or occupancy
levels decline, we generally would expect to have less cash available to pay indebtedness and for
distribution to shareholders. In addition, some of our major expenses, including mortgage payments,
real estate taxes and maintenance costs generally do not decline when the related rents decline.
It may be difficult to buy and sell real estate quickly, which may limit our flexibility.
Real estate investments are relatively difficult to buy and sell quickly. Consequently, we may
have limited ability to vary our portfolio promptly in response to changes in economic or other
conditions. Moreover, our ability to buy, sell, or finance real estate assets may be adversely affected
during periods of uncertainty or unfavorable conditions in the credit markets as we, or potential buyers
of our assets, may experience difficulty in obtaining financing.
We may incur significant costs to comply with environmental laws and environmental contamination may
impair our ability to lease and/or sell real estate.
Our operations and assets are subject to various federal, state and local laws and regulations
concerning the protection of the environment including air and water quality, hazardous or toxic
substances and health and safety. Under some environmental laws, a current or previous owner or
operator of real estate may be required to investigate and clean up hazardous or toxic substances
released at a property. The owner or operator may also be held liable to a governmental entity or to
third parties for property damage or personal injuries and for investigation and clean-up costs incurred
by those parties because of the contamination. These laws often impose liability without regard to
whether the owner or operator knew of the release of the substances or caused such release. The
presence of contamination or the failure to remediate contamination may impair our ability to sell or
lease real estate or to borrow using the real estate as collateral. Other laws and regulations govern
indoor and outdoor air quality including those that can require the abatement or removal of asbestoscontaining materials in the event of damage, demolition, renovation or remodeling, and also govern
emissions of and exposure to asbestos fibers in the air. The maintenance and removal of lead paint and
certain electrical equipment containing polychlorinated biphenyls (PCBs) are also regulated by federal
and state laws. We are also subject to risks associated with human exposure to chemical or biological
contaminants such as molds, pollens, viruses and bacteria which, above certain levels, can be alleged to
be connected to allergic or other health effects and symptoms in susceptible individuals. Our
predecessor companies may be subject to similar liabilities for activities of those companies in the past.
We could incur fines for environmental noncompliance and be held liable for the costs of remedial
action with respect to the foregoing regulated substances or related claims arising out of environmental
contamination or human exposure at or from our assets.
Most of our assets have been subjected to varying degrees of environmental assessment at
various times. To date, these environmental assessments have not revealed any environmental condition
material to our business. However, identification of new compliance concerns or undiscovered areas of
contamination, changes in the extent or known scope of contamination, human exposure to
contamination or changes in cleanup or compliance requirements could result in significant costs to us.
In addition, we may become subject to costs or taxes, or increases therein, associated with
natural resource or energy usage (such as a ‘‘carbon tax’’). These costs or taxes could increase our
operating costs and decrease the cash available to pay our obligations or distribute to equity holders.
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If we default on or fail to renew at expiration the ground leases for land on which some of our assets are
located or other long-term leases, our results of operations could be adversely affected.
We will own leasehold interests in certain land on which some of the assets to be acquired in
the transaction are located. If we default under the terms of any of these ground leases, we may be
liable for damages and could lose our leasehold interest in the property or our option to purchase the
underlying fee interest in such assets. In addition, unless we purchase the underlying fee interests in the
land on which a particular property is located, we will lose our right to operate the property or we will
continue to operate it at much lower profitability, which would significantly adversely affect our results
of operations. In addition, if we are perceived to have breached the terms of a ground lease, the fee
owner may initiate proceedings to terminate the lease. The remaining weighted average term of our
ground leases, including unilateral as-of-right extension rights available to us, is approximately
72.4 years. Our share of annualized rent from assets subject to ground leases as of March 31, 2017 was
approximately $43.4 million, or 7.8%.
Risks Related to Our Organization and Structure
Tax consequences to holders of JBG SMITH LP limited partnership units upon a sale of certain of our assets
may cause the interests of our senior management to differ from your own.
Some holders of JBG SMITH LP limited partnership units, including members of our senior
management, may suffer different and more adverse tax consequences than holders of our common
shares upon the sale of certain of the assets owned by our operating partnership, and therefore these
holders may have different objectives regarding the appropriate pricing, timing and other material
terms of any sale or refinancing of certain assets, or whether to sell such assets at all.
Our declaration of trust and bylaws, the partnership agreement of our operating partnership and Maryland
law contain provisions that may delay, defer or prevent a change of control transaction that might involve a
premium price for our common shares or that our shareholders otherwise believe to be in their best interest.
Our declaration of trust contains certain ownership limits with respect to our shares.
Generally, to maintain our qualification as a REIT, no more than 50% in value of our
outstanding shares of beneficial interest may be owned, directly or indirectly, by five or fewer
individuals at any time during the last half of our taxable year. The Code defines ‘‘individuals’’ for
purposes of the requirement described in the preceding sentence to include some types of entities. Our
declaration of trust, as it will be amended and restated in connection with the transaction, authorizes
our board of trustees to take such actions as it determines are necessary or advisable to preserve our
qualification as a REIT. Our declaration of trust will prohibit, among other things, the actual, beneficial
or constructive ownership by any person of more than 7.5% in value or number of shares, whichever is
more restrictive, of the outstanding shares of any class or series. For these purposes, our declaration of
trust will include a ‘‘group’’ as that term is used for purposes of Section 13(d)(3) of the Exchange Act
in the definition of ‘‘person.’’ Our board of trustees may exempt a person, prospectively or
retroactively, from these ownership limits if certain conditions are satisfied.
This ownership limit and the other restrictions on ownership and transfer of our shares
contained in our declaration of trust may:
• discourage a tender offer or other transactions or a change in management or of control that
might involve a premium price for our common shares or that our shareholders might
otherwise believe to be in their best interest; or
• result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit
of a charitable beneficiary and, as a result, the forfeiture by the acquirer of the benefits of
owning the additional shares.
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Certain provisions of Maryland law could inhibit changes in control, which may discourage third
parties from conducting a tender offer or seeking other change of control transactions that might
involve a premium price for our common shares or that our shareholders might otherwise believe to
be in their best interest.
Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect
of inhibiting a third party from making a proposal to acquire us or of impeding a change of control
under circumstances that otherwise could provide the holders of common shares with the opportunity
to realize a premium over the then-prevailing market price of such shares, including:
• ‘‘business combination’’ provisions that, subject to limitations, prohibit certain business
combinations between us and an ‘‘interested shareholder’’ (defined generally as any person
who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof
or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of
10% or more of the voting power of our then-outstanding voting shares at any time within
the two-year period immediately prior to the date in question) for five years after the most
recent date on which the shareholder becomes an interested shareholder, and thereafter
impose fair price and/or supermajority shareholder voting requirements on these
combinations; and
• ‘‘control share’’ provisions that provide that a shareholder’s ‘‘control shares’’ of our company
(defined as shares that, when aggregated with other shares controlled by the shareholder,
entitle the shareholder to exercise one of three increasing ranges of voting power in electing
trustees) acquired in a ‘‘control share acquisition’’ (defined as the direct or indirect
acquisition of ownership or control of issued and outstanding ‘‘control shares’’) have no
voting rights with respect to their control shares, except to the extent approved by our
shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast
on the matter, excluding all interested shares.
As permitted by the MGCL, we have elected in our bylaws to opt out of the control share
provisions of the MGCL. However, we cannot assure you that our board of trustees will not opt to be
subject to such provisions of the MGCL in the future, including opting to be subject to such provisions
retroactively.
Certain provisions of Subtitle 8 of Title 3 of the MGCL permit our board of trustees, without
shareholder approval and regardless of what is currently provided in our declaration of trust or bylaws,
to implement certain corporate governance provisions, some of which (for example, approval by at least
two-thirds of all shareholders to remove a trustee) are not currently applicable to us. These provisions
may have the effect of limiting or precluding a third party from making an unsolicited acquisition
proposal for us or of delaying, deferring or preventing a change in control of us under circumstances
that otherwise could provide the holders of common shares with the opportunity to realize a premium
over the then current market price.
The limited partnership agreement of our operating partnership requires the approval of the limited partners
with respect to certain extraordinary transactions involving JBG SMITH, which may reduce the likelihood of
such transactions being consummated, even if they are in the best interests of, and have been approved by, our
shareholders.
The limited partnership agreement of JBG SMITH LP, our operating partnership, as it will be
amended and restated in connection with the combination, will provide that JBG SMITH may not
engage in a merger, consolidation or other combination with or into another person, a sale of all or
substantially all of our assets, or a reclassification, recapitalization or a change in outstanding shares
(except for changes in par value, or from par value to no par value, or as a result of a subdivision or
combination of our common shares), which we refer to collectively as an extraordinary transaction,
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unless certain criteria are met. In particular, with respect to any extraordinary transaction, if partners
will receive consideration for their limited partnership units and if we seek the approval of JBG
SMITH shareholders for the transaction (or if we would have been required to obtain shareholder
approval of any such extraordinary transaction but for the fact that a tender offer shall have been
accepted with respect to a sufficient number of our common shares to permit consummation of such
extraordinary transaction without shareholder approval), then the limited partnership agreement
prohibits us from engaging in the extraordinary transaction unless we also obtain ‘‘partnership
approval.’’ In order to obtain ‘‘partnership approval,’’ we must obtain the consent of our limited
partners (including us and any limited partners majority owned, directly or indirectly, by us)
representing a percentage interest in JBG SMITH LP that is equal to or greater than the percentage of
our outstanding common shares required (or that would have been required in the absence of a tender
offer) to approve the extraordinary transaction, provided that we and any limited partners majority
owned, directly or indirectly, by us will be deemed to have provided consent for our partnership units
solely in proportion to the percentage of our common shares approving the extraordinary transaction
(or, if there is no shareholder vote with respect to such extraordinary transaction because a tender offer
shall have been accepted with respect to a sufficient number of our common shares to permit
consummation of the extraordinary transaction without shareholder approval, the percentage of our
common shares with respect to which such tender offer shall have been accepted). This requirement is
described in more detail under ‘‘Partnership Agreement.’’
The limited partners of JBG SMITH LP may have interests in an extraordinary transaction that
differ from those of JBG SMITH common shareholders, and there can be no assurance that, if we are
required to seek ‘‘partnership approval’’ for such a transaction, we will be able to obtain it. As a result,
if a sufficient number of limited partners oppose such an extraordinary transaction, the limited
partnership agreement may prohibit JBG SMITH from consummating it, even if it is in the best
interests of, and has been approved by, our shareholders.
Until the 2020 annual meeting of shareholders, JBG SMITH will have a classified board of trustees and that
may reduce the likelihood of certain takeover transactions.
Our declaration of trust, which will be amended and restated prior to the separation, will
initially divide our board of trustees into three classes. The initial terms of the first, second and third
classes will expire at the first, second and third annual meetings of shareholders, respectively, held
following the separation and the combination. Initially, shareholders will elect only one class of trustees
each year. Shareholders will elect successors to trustees of the first class for a two-year term and
successors to trustees of the second class for a one-year term, in each case upon the expiration of the
terms of the initial trustees of each class. Commencing with the 2020 annual meeting of shareholders,
each trustee shall be elected annually for a term of one year and shall hold office until the next
succeeding annual meeting and until a successor is duly elected and qualifies. There is no cumulative
voting in the election of trustees. Until the 2020 annual meeting of the shareholders, JBG SMITH’s
board will be classified, which may reduce the possibility of a tender offer or an attempt to change
control of JBG SMITH, even though a tender offer or change in control might be in the best interest
of JBG SMITH’s shareholders.
We may issue additional shares in a manner that could adversely affect the likelihood of certain takeover
transactions.
JBG SMITH’s declaration of trust, which will be amended and restated prior to the separation,
will authorize the board of trustees, without shareholder approval, to:
• cause JBG SMITH to issue additional authorized but unissued common or preferred shares;
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• classify or reclassify, in one or more classes or series, any unissued common or preferred
shares;
• set the preferences, rights and other terms of any classified or reclassified shares that JBG
SMITH issues; and
• amend JBG SMITH’s declaration of trust to increase the number of shares of beneficial
interest that JBG SMITH may issue.
The board of trustees could establish a class or series of common or preferred shares whose
terms could delay, deter or prevent a change in control of JBG SMITH or other transaction that might
involve a premium price or otherwise be in the best interest of our shareholders, although the board of
trustees does not now intend to establish a class or series of common or preferred shares of this kind.
JBG SMITH’s declaration of trust and bylaws will contain other provisions that may delay, deter or
prevent a change in control of JBG SMITH or other transaction that might involve a premium price or
otherwise be in the best interest of our shareholders.
Substantially all of our assets will be owned by subsidiaries. We depend on dividends and distributions from
these subsidiaries. The creditors of these subsidiaries are entitled to amounts payable to them by the
subsidiaries before the subsidiaries may pay any dividends or other distributions to us.
Substantially all of our assets are held through JBG SMITH LP, our operating partnership,
which holds substantially all of its assets through wholly owned subsidiaries. JBG SMITH LP’s cash
flow is dependent on cash distributions to it by its subsidiaries, and in turn, substantially all of our cash
flow is dependent on cash distributions to us by JBG SMITH LP. The creditors of each of our
subsidiaries are entitled to payment of that subsidiary’s obligations to them when due and payable
before distributions may be made by that subsidiary to its equity holders. Thus, JBG SMITH LP’s
ability to make distributions to holders of its units depends on its subsidiaries’ ability first to satisfy
their obligations to their creditors, and then to make distributions to JBG SMITH LP. Likewise, our
ability to pay dividends to our shareholders depends on JBG SMITH LP’s ability first to satisfy its
obligations, if any, to its creditors and make distributions payable to holders of preferred units (if any),
and then to make distributions to us.
In addition, our participation in any distribution of the assets of any of our subsidiaries upon
the liquidation, reorganization or insolvency of the subsidiary, is only after the claims of the creditors,
including trade creditors, and preferred security holders, if any, of the applicable direct or indirect
subsidiaries are satisfied.
Risks Related to Our Status as a REIT
JBG SMITH may fail to qualify or remain qualified as a REIT and may be required to pay income taxes at
corporate rates.
Although we believe that we will be organized and will continue to operate so as to qualify as
a REIT for federal income tax purposes, we may fail to remain so qualified. Qualifications are
governed by highly technical and complex provisions of the Code for which there are only limited
judicial or administrative interpretations and depend on various facts and circumstances that are not
entirely within our control. In addition, legislation, new regulations, administrative interpretations or
court decisions may significantly change the relevant tax laws and/or the federal income tax
consequences of qualifying as a REIT. If, with respect to any taxable year, we fail to maintain our
qualification as a REIT and do not qualify under statutory relief provisions, we could not deduct
distributions to shareholders in computing our taxable income and would have to pay federal income
tax on our taxable income at regular corporate rates. The federal income tax payable would include any
applicable alternative minimum tax. If we had to pay federal income tax, the amount of money
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available to distribute to shareholders and pay our indebtedness would be reduced for the year or years
involved, and we would not be required to make distributions to shareholders in that taxable year and
in future years until we were able to qualify as a REIT. In addition, we would also be disqualified from
treatment as a REIT for the four taxable years following the year during which qualification was lost,
unless we were entitled to relief under the relevant statutory provisions.
REIT distribution requirements could adversely affect our liquidity and our ability to execute our business
plan.
In order for us to qualify to be taxed as a REIT, and assuming that certain other requirements
are also satisfied, we generally must distribute at least 90% of our REIT taxable income, determined
without regard to the dividends paid deduction and excluding any net capital gains, to our shareholders
each year, so that U.S. federal corporate income tax does not apply to earnings that we distribute. To
the extent that we satisfy this distribution requirement and qualify for taxation as a REIT, but distribute
less than 100% of our REIT taxable income, determined without regard to the dividends paid
deduction and including any net capital gains, we will be subject to U.S. federal corporate income tax
on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise
tax if the actual amount that we distribute to our shareholders in a calendar year is less than a
minimum amount specified under U.S. federal income tax laws. We intend to distribute 100% of our
REIT taxable income to our shareholders out of assets legally available therefor.
From time to time, we may generate taxable income greater than our cash flow as a result of
differences in timing between the recognition of taxable income and the actual receipt of cash or the
effect of nondeductible capital expenditures, the creation of reserves, or required debt or amortization
payments. If we do not have other funds available in these situations, we could be required to borrow
funds on unfavorable terms, sell assets at disadvantageous prices, distribute amounts that would
otherwise be invested in future acquisitions, capital expenditures or repayment of debt, or make taxable
distributions of our shares or debt securities to make distributions sufficient to enable us to pay out
enough of our taxable income to satisfy the REIT distribution requirement and avoid corporate income
tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our
equity. Further, amounts distributed will not be available to fund investment activities. Thus,
compliance with the REIT requirements may hinder our ability to grow, which could adversely affect
the value of our shares. Any restrictions on our ability to incur additional indebtedness or make certain
distributions could preclude us from meeting the 90% distribution requirement. Decreases in funds
from operations due to unfinanced expenditures for acquisitions of assets or increases in the number of
shares outstanding without commensurate increases in funds from operations would each adversely
affect our ability to maintain distributions to our shareholders. Consequently, there can be no assurance
that we will be able to make distributions at the anticipated distribution rate or any other rate. Please
refer to ‘‘Dividend Policy.’’
We face possible adverse changes in tax laws, which may result in an increase in our tax liability and adverse
consequences to our shareholders.
Changes in U.S. federal, state and local tax laws or regulations, with or without retroactive
application, could have a negative effect on us. New legislation, Treasury regulations, administrative
interpretations or court decisions could significantly and negatively affect our ability to qualify to be
taxed as a REIT and/or the U.S. federal income tax consequences to our investors and to our company
of such qualification. In addition, recent events and the shortfall in tax revenues for states and
municipalities in recent years may lead to an increase in the frequency and size of such tax law
changes. Even changes that do not impose greater taxes on us could potentially result in adverse
consequences to our shareholders. For example, a decrease in corporate tax rates could decrease the
attractiveness of the REIT structure relative to companies that are not organized as REITs.
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In any event, the rules of Section 355 of the Code and the Treasury Regulations promulgated
thereunder, which apply to determine the taxability of the separation and the combination, have been
the subject of change and may continue to be the subject of change, possibly with retroactive
application, which could have a negative effect on us and our shareholders. If such changes occur, we
may be required to pay additional taxes on our assets or income. These increased tax costs could
adversely affect our financial condition and results of operations and the amount of cash available for
payment of dividends.
Risks Related to Our Common Shares
No market currently exists for the JBG SMITH common shares and we cannot be certain that an active
trading market for our common shares will develop or be sustained after the separation. Following the
separation, our share price may fluctuate significantly.
A public market for our common shares does not currently exist. We anticipate that on or
prior to the record date for the distribution, trading of our common shares will begin on a
‘‘when-issued’’ basis and will continue through the distribution date. However, we cannot guarantee
that an active trading market will develop or be sustained for our common shares after the separation.
Nor can we predict the prices at which our common shares may trade after the separation. Similarly,
we cannot predict the effect of the separation on the trading prices of our common shares or whether
the combined market value of our common shares and Vornado’s common shares will be less than,
equal to, or greater than the market value of Vornado’s common shares prior to the separation. The
market price of our common shares may fluctuate significantly due to a number of factors, some of
which may be beyond our control, including:
• our financial condition and performance;
• the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;
• actual or anticipated quarterly fluctuations in our operating results and financial condition;
• our dividend policy;
• the reputation of REITs and real estate investments generally and the attractiveness of REIT
equity securities in comparison to other equity securities, including securities issued by other
real estate companies, and fixed income securities;
• perceptions of the Washington, DC metropolitan area real estate market;
• uncertainty and volatility in the equity and credit markets;
• fluctuations in interest rates;
• changes in revenue or earnings estimates or publication of research reports and
recommendations by financial analysts or actions taken by rating agencies with respect to our
securities or those of other REITs;
• failure to meet analysts’ revenue or earnings estimates;
• speculation in the press or investment community;
• strategic actions by us or our competitors, such as acquisitions or restructurings;
• the extent of institutional investor interest in us;
• the extent of short-selling of our common shares and the shares of our competitors;
• fluctuations in the stock price and operating results of our competitors;
87
• general financial and economic market conditions and, in particular, developments related to
market conditions for REITs and other real estate related companies;
• domestic and international economic factors unrelated to our performance; and
• all other risk factors addressed elsewhere in this information statement.
In addition, when the market price of a company’s common shares drops significantly,
shareholders often institute securities class action lawsuits against the company. A lawsuit against us
could cause us to incur substantial costs and could divert the time and attention of our management
and other resources.
We cannot guarantee the timing, amount, or payment of dividends on our common shares.
Although we expect to pay regular cash dividends following the separation, the timing,
declaration, amount and payment of future dividends to shareholders will fall within the discretion of
our board of trustees. Our board of trustees’ decisions regarding the payment of dividends will depend
on many factors, such as our financial condition, earnings, capital requirements, debt service
obligations, limitations under our financing arrangements, industry practice, legal requirements,
regulatory constraints, and other factors that it deems relevant. Our ability to pay dividends will depend
on our ongoing ability to generate cash from operations and access the capital markets. We cannot
guarantee that we will pay a dividend in the future or continue to pay any dividend if we commence
paying dividends. For more information, please refer to ‘‘Dividend Policy.’’
Your percentage of ownership in our company may be diluted in the future.
In the future, your percentage of ownership in us may be diluted because of equity issuances
for acquisitions, capital market transactions or otherwise. We also anticipate granting compensatory
equity awards to our trustees, officers, employees, advisors and consultants who will provide services to
us after the distribution. Such awards will have a dilutive effect on our earnings per share, which could
adversely affect the market price of our common shares.
In addition, our declaration of trust will authorize us to issue, without the approval of our
shareholders, one or more classes or series of preferred shares having such designation, voting powers,
preferences, rights and other terms, including preferences over our common shares respecting dividends
and distributions, as our board of trustees generally may determine. The terms of one or more classes
or series of preferred shares could dilute the voting power or reduce the value of our common shares.
For example, we could grant the holders of preferred shares the right to elect some number of our
trustees in all events or on the occurrence of specified events, or the right to veto specified
transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign
to holders of preferred shares could affect the residual value of our common shares. Please refer to
‘‘Description of Shares of Beneficial Interest.’’
From time to time we may seek to make one or more material acquisitions. The announcement of such a
material acquisition may result in a rapid and significant decline in the price of our common shares.
We are continuously looking at material transactions that we believe will maximize shareholder
value. However, an announcement by us of one or more significant acquisitions could result in a quick
and significant decline in the price of our common shares.
88
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute forward-looking statements. Forward-looking
statements are not guarantees of future performance. They represent our intentions, plans, expectations
and beliefs and are subject to numerous assumptions, risks and uncertainties. Our future results,
financial condition and business may differ materially from those expressed in these forward-looking
statements. You can find many of these statements by looking for words such as ‘‘approximates,’’
‘‘believes,’’ ‘‘expects,’’ ‘‘anticipates,’’ ‘‘estimates,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘would,’’ ‘‘may’’ or other similar
expressions in this information statement. In particular, information included under ‘‘Risk Factors,’’
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ ‘‘Business
and Properties,’’ and ‘‘The Separation and the Combination’’ contains forward-looking statements. We
also note the following forward-looking statements: in the case or our development and redevelopment
projects, the estimated completion date, estimated project cost and cost to complete; and estimates of
future capital expenditures, dividends to common shareholders and operating partnership distributions.
Many of the factors that will determine the outcome of these and our other forward-looking statements
are beyond our ability to control or predict. For a discussion of factors that could materially affect the
outcome of our forward-looking statements, see ‘‘Risk Factors’’ and ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations’’ in this information statement.
You are cautioned not to place undue reliance on our forward-looking statements, which speak
only as of the date of this information statement or the date of any document incorporated by
reference. All subsequent written and oral forward-looking statements attributable to us or any person
acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or
referred to in this section. We do not undertake any obligation to release publicly any revisions to our
forward-looking statements to reflect events or circumstances occurring after the date of this
information statement.
89
DIVIDEND POLICY
We are a newly formed company that has not commenced operations and, as a result, we have
not paid any dividends as of the date of this information statement. We expect to distribute 100% of
our REIT taxable income to our shareholders out of assets legally available therefor. We expect that
the cash required to fund our dividends will be covered by cash generated from operations and, to the
extent they are not so covered, from our cash on hand. Our dividends must be authorized by our board
of trustees, in its sole discretion.
To qualify as a REIT, we must distribute to our shareholders an amount at least equal to:
(i) 90% of our REIT taxable income, determined before the deduction for dividends paid and
excluding any net capital gain (which does not necessarily equal net income as calculated in
accordance with GAAP); plus
(ii) 90% of the excess of our net income from foreclosure property over the tax imposed on such
income by the Code; less
(iii) Any excess non-cash income (as determined under the Code). Please refer to ‘‘Material U.S.
Federal Income Tax Consequences.’’
We cannot assure you that our distribution policy will remain the same in the future, or that
any estimated distributions will be made or sustained. Distributions made by us will be authorized by
our board of trustees, in its sole discretion, and declared by us out of legally available funds, and will
be dependent upon a number of factors, including restrictions under applicable law, actual and
projected financial condition, liquidity, funds from operations and results of operations, the revenue we
actually receive from our assets, our operating expenses, our debt service requirements, our capital
expenditures, prohibitions and other limitations under our financing arrangements, the annual REIT
distribution requirements and such other factors as our board of trustees deems relevant. For more
information regarding risk factors that could materially and adversely affect our ability to make
distributions, please refer to ‘‘Risk Factors.’’
Our distributions may be funded from a variety of sources. In particular, we expect that initially
our distributions may exceed our net income under GAAP because of non-cash expenses, principally
depreciation and amortization expense, included in net income under GAAP. To the extent that our
cash available for distribution is less than 100% of our taxable income, we may consider various means
to cover any such shortfall, including borrowing, selling certain of our assets or using a portion of the
net proceeds we receive from future offerings of equity, equity-related or debt securities or declaring
taxable share dividends. In addition, our declaration of trust will allow us to issue shares of preferred
equity that could have a preference on distributions and, if we do, the distribution preference on the
preferred equity could limit our ability to make distributions to the holders of our common shares.
For a discussion of the tax treatment of distributions to holders of our common shares, please
refer to ‘‘Material U.S. Federal Income Tax Consequences.’’
90
CAPITALIZATION
The following table sets forth JBG SMITH’s capitalization as of March 31, 2017 on an
unaudited historical basis as it existed prior to the separation and the combination, when it had no
material assets or operations, and on a pro forma basis to give effect to the pro forma adjustments
included in JBG SMITH’s unaudited pro forma financial information. The information below is not
necessarily indicative of what JBG SMITH’s capitalization would have been had the separation,
distribution, combination and related transactions been completed as of March 31, 2017. In addition, it
is not indicative of JBG SMITH’s future capitalization. This table should be read in conjunction with
‘‘Unaudited Pro Forma Combined Financial Statements,’’ ‘‘Selected Historical Combined Financial
Data,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ and
JBG SMITH’s audited combined financial statements and notes and unaudited combined interim
financial statements and notes included elsewhere in this information statement.
Actual
As of March 31, 2017
Pro Forma
Adjustments
Pro Forma
(Amounts in thousands)
Cash and cash equivalents(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1
$ 510,517
$ 510,518
Mortgages payable, net of deferred financing costs . . . . . . . . . . . . . .
Revolving credit facility(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unsecured term loan(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
—
—
$2,059,515
117,269
50,000
$2,059,515
117,269
50,000
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2,226,784
2,226,784
Shareholder’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests in JBG SMITH LP . . . . . . . . . . . . . . . . . . .
Noncontrolling interest in consolidated subsidiaries . . . . . . . . . . . . . .
1
—
—
3,358,151
566,777
4,153
3,358,152
566,777
4,153
Total Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1
$6,155,865
$6,155,866
(1)
(1)
(2)
Pursuant to the separation, the distributions by each of Vornado and VRLP, and the combination, these adjustments
reflect:
(i)
Vornado’s and JBG’s contribution of cash in connection with the separation and combination, which results
in a pro forma cash balance of $510.5 million, after reduction for transaction costs, that is to be used by JBG
SMITH for general corporate purposes;
(ii)
the reclassification of Vornado equity to shareholders’ equity; and
(iii)
the execution of a $1.4 billion credit agreement under which $167.3 million is expected to be drawn and
outstanding as of the date of the separation, including the borrowing described in (2) below.
The mortgage for the Bowen Building ($115,630 principal balance and $1,639 accrued interest) will be assigned to JBG
SMITH and the note will be repaid with new financing proceeds from JBG SMITH’s revolving credit facility.
91
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The following tables set forth the summary historical combined financial and other data of JBG
SMITH as it will exist following the separation but prior to the combination, when we will own the
Vornado Included Assets but will not yet have acquired the JBG Included Assets, which was carved out
from the financial information of Vornado as described below. We were formed for the purpose of
receiving, via contribution from Vornado, all of the assets and liabilities of Vornado’s Washington, DC
segment, and combining Vornado’s Washington, DC segment (which operates as Vornado / Charles E.
Smith) and the management business and certain Washington, DC assets of JBG. Prior to the effective
date of the registration statement on Form 10 of which this information statement forms a part, and
the completion of the distributions by each of Vornado and VRLP, we did not conduct any business
and did not have any material assets or liabilities. The selected historical financial data set forth below
as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 has
been derived from our audited combined financial statements, which are included elsewhere in this
information statement. The selected financial historical data set forth below as of December 31, 2014
and 2013 and for the year ended December 31, 2013 has been derived from our audited combined
financial statements, which are not included in this information statement. The selected historical
combined financial data as of December 31, 2012 and for the year ended December 31, 2012 has been
derived from our unaudited combined financial statements, which are not included in this information
statement. The income statement data for each of the three months ended March 31, 2017 and 2016
and the balance sheet data as of March 31, 2017 have been derived from our unaudited interim
combined financial statements included elsewhere in this information statement. Our unaudited interim
combined financial statements as of March 31, 2017 and for the three months ended March 31, 2017
and 2016 were prepared on the same basis as our audited combined financial statements as of
December 31, 2016, 2015 and 2014 and for each of the years ended December 31, 2016, 2015 and 2014
and, in the opinion of management, include all adjustments, consisting only of normal, recurring
adjustments, necessary to present fairly our financial position and results of operations for these
periods. The interim results of operations are not necessarily indicative of operations for a full fiscal
year.
The historical results set forth below do not indicate results expected for any future periods.
The selected financial data set forth below are qualified in their entirety by, and should be read in
conjunction with, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’ and our combined financial statements and related notes thereto included elsewhere in
this information statement.
The following tables set forth selected financial and operating data for the Vornado Included
Assets. This data may not be comparable to, or indicative of, future operating results.
(Unaudited)
As of
March 31, (Audited)
2017
2016
(Amounts in thousands)
Balance Sheet Data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate, at cost . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . .
Mortgages payable, net of deferred financing costs .
Payable to Vornado . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest in consolidated subsidiaries .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,686,203
4,178,065
957,270
1,161,984
289,590
295
2,140,587
92
As of December 31,
(Audited) (Audited) (Audited) (Unaudited)
2015
2014
2013
2012
$3,660,640 $3,575,878 $3,357,744 $3,226,203
4,155,391 4,038,206 3,809,213 3,700,763
930,769
908,233
797,806
732,707
1,165,014 1,302,956 1,277,889 1,180,480
283,232
82,912
—
—
295
515
568
536
2,121,984 2,059,491 1,988,915 1,966,321
$3,223,365
3,641,205
661,597
1,354,895
—
448
1,771,398
(Unaudited)
Three Months
Ended March 31,
2017
2016
(Amounts in thousands)
Income Statement Data:
Total revenues . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . .
Net income attributable to the Vornado
Included Assets . . . . . . . . . . . . . . .
Cash Flow Statement Data:
Provided by operating activities . . . . . .
Used in investing activities . . . . . . . . .
Provided by (used in) financing activities
For the Year Ended December 31,
(Audited) (Audited) (Audited) (Audited) (Unaudited)
2016
2015
2014
2013
2012
. . . $116,272 $116,784 $ 478,519 $ 470,607 $ 472,923
. . .
19,606
24,276
112,793
102,597
138,619
. . .
. . .
. . .
. . .
6,318
11,547
61,974
49,628
81,299
39,601
57,861
159,541
178,230
187,386
(30,094) (58,182) (256,590) (237,953) (236,923)
12,205 (32,196)
51,083
122,671
33,353
93
$476,311
149,674
$ 479,800
142,904
92,026
59,626
176,255
(99,018)
(73,711)
195,690
(70,065)
(123,770)
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements have been prepared in
accordance with Article 11 of Regulation S-X, using the assumptions set forth in the notes to the
unaudited pro forma combined financial information by applying pro forma adjustments to the
historical combined financial information to reflect the separation of the Vornado Included Assets from
Vornado and the acquisition of the JBG Included Assets (including JBG Operating Partners) as
described elsewhere in this information statement. The unaudited pro forma combined balance sheet
gives effect to the transaction as if it had occurred on March 31, 2017. The unaudited pro forma
combined statements of operations give effect to the transaction as if it had occurred on January 1,
2016. All significant pro forma adjustments and underlying assumptions are described in the notes to
the unaudited pro forma combined financial statements.
The unaudited pro forma adjustments include the following:
• The contribution from Vornado to JBG SMITH of the assets and liabilities that comprise the
Vornado Included Assets’ business and $213.0 million of cash;
• The acquisition of the JBG Included Assets (including JBG Operating Partners), including
cash of $80.6 million;
• The issuance of approximately 19.3 million common limited partnership units of
JBG SMITH LP (in addition to 118.5 million common limited partnership units issued to
JBG SMITH, the general partner of JBG SMITH LP, in connection with the distribution)
based upon (i) a distribution ratio of one common limited partnership unit of
JBG SMITH LP for every two common limited partnership units of VRLP, resulting in the
expected issuance of approximately 5.9 million common limited partnership units to VRLP’s
unitholders and (ii) the issuance of approximately 13.4 million common limited partnership
units to the JBG designees in connection with the combination;
• The issuance of approximately 118.5 million JBG SMITH common shares on the distribution
date based upon (i) a distribution ratio of one JBG SMITH common share for every two
Vornado common shares, resulting in the expected issuance of approximately 94.7 million
JBG SMITH common shares to Vornado’s common shareholders and (ii) the issuance of
approximately 23.8 million JBG SMITH common shares to the JBG designees in connection
with the combination; and
• The execution of a $1.4 billion credit agreement.
The accompanying unaudited pro forma combined financial statements do not give effect to
the potential impact of cost savings that may result from the transactions described above or items that
will not have a recurring impact. While Vornado will provide JBG SMITH with certain information
technology, financial reporting, SEC compliance, and possibly other support services on a transitional
basis pursuant to a Transition Services Agreement, a significant portion of these services are expected
to be less than one year in duration. Accordingly, the accompanying unaudited pro forma combined
financial statements do not give effect to the Transition Services Agreement with Vornado, as the
majority of these services are not expected to be recurring in nature and therefore do not have a
continuing impact on JBG SMITH’s unaudited pro forma combined statements of operations.
In the event the mortgage lender does not provide consent to transfer of the beneficial
interests in the owner of 2121 Crystal Drive, the $141,015 mortgage will either be defeased or repaid
with a yield maintenance premium and the approximate cost of the defeasance or yield maintenance
premium is estimated to be approximately $25,600, which has not been reflected as a pro forma
adjustment herein.
94
The unaudited pro forma combined financial statements are presented for illustrative purposes
only and are not necessarily indicative of the financial position or financial results that would have
actually been reported had the transaction occurred on January 1, 2016 or March 31, 2017, as
applicable, nor are they indicative of our future financial position or financial results. The differences
that will occur between the preliminary estimates and the final acquisition accounting could have a
material impact on the unaudited pro forma combined financial statements, including the impact on
pro forma amortization of intangible assets and depreciation of property, plant and equipment.
The unaudited pro forma combined financial statements include the results of the carve-out of
the Vornado Included Assets from the financial information of Vornado. The historical financial results
of the Vornado Included Assets reflect charges for certain corporate expenses which include, but are
not limited to, costs related to human resources, security, payroll and benefits, legal, corporate
communications, information services and restructuring and reorganization. Costs of the services that
were allocated or charged to the Vornado Included Assets were based on either actual costs incurred
or a proportion of costs estimated to be applicable to the Vornado Included Assets based on a number
of factors, most significantly, the Vornado Included Assets’ percentage of Vornado’s revenue. This
unaudited pro forma financial information is based on available information and various assumptions
that management believes to be reasonable. However, these results may not reflect what our expenses
would have been had the Vornado Included Assets been operating as a separate standalone public
company.
We considered the guidance in Financial Accounting Standards Board Accounting Standards
Codification (‘‘ASC’’) 805, Business Combinations, and determined that the Vornado Included Assets
should be the accounting acquirer and all of their assets, liabilities and results of operations will be
recorded at their historical cost basis. Although the management team of JBG Operating Partners will
represent the majority of the management of JBG SMITH, our conclusion is supported by the
following considerations: (i) Vornado common shareholders will hold a significant majority of the JBG
SMITH common shares and the voting rights attendant thereto; (ii) the fair value of the Vornado
Included Assets is significantly greater than that of the JBG Included Assets (including JBG Operating
Partners); and (iii) while the board of trustees will include six trustees designated by Vornado and six
trustees designated by JBG, the majority voting rights provide Vornado common shareholders, as a
result of the issuance to them of what is expected to comprise a significant majority of the common
shares of JBG SMITH, with the ability to determine the outcome of elections for the board of trustees
occurring beginning in 2018 (with the full board of trustees subject to reelection within three years) and
the outcome of the vote on other matters that require shareholder approval. The JBG Included Assets
(including JBG Operating Partners) are not entities under common control or subsidiaries of a
common parent.
The unaudited pro forma combined financial statements also include the effect of the
acquisition by JBG SMITH of the JBG Included Assets (including JBG Operating Partners), which will
be accounted for under the acquisition method of accounting and recognized at the estimated fair value
of the assets acquired and liabilities assumed on the date of such acquisition in accordance with
ASC 805.
The unaudited pro forma combined financial statements should be read in conjunction with the
combined financial statements and related notes thereto contained elsewhere in this information
statement.
95
JBG SMITH Properties
PRO FORMA COMBINED BALANCE SHEET
March 31, 2017
(Unaudited)
(Amounts in thousands)
JBG Included Assets
JBG SMITH
Properties
(A)
ASSETS
Real estate, at cost:
Land . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . .
Construction in progress . . . . . . . . . .
Leasehold improvements and equipment
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$
—
—
—
—
Vornado
Included
Assets
(B)
$ 934,317
3,053,802
167,248
22,698
Acquisition of
JBG Consolidated Assets Elimination
Other
Acquisition of
and Unconsolidated Real Pro Forma
Pro Forma JBG SMITH
JBG Operating Partners
Estate Ventures
Adjustments Adjustments Properties
(C)
(C)
(D)
(E)
Pro Forma
$
—
—
—
6,813
$ 440,111
693,641
548,144
1,913
$
—
—
—
—
—
—
—
4,074
$
96
—
—
4,178,065
(957,270)
6,813
—
1,683,809
—
Real estate, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tenant and other receivables, net of allowance for doubtful accounts
Investments in unconsolidated real estate ventures . . . . . . . . . . .
Receivables arising from the straight-lining of rents, net of allowance
Identified intangible assets, net of accumulated amortization . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred leasing costs, net of accumulated amortization . . . . . . . .
Receivable from Vornado . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable and other assets, including prepaid expenses . . . . .
—
1
—
—
—
—
—
—
—
—
—
3,220,795
50,712
4,728
28,442
49,958
140,329
2,904
—
102,356
75,894
10,085
6,813
—
—
25,039
24
—
84,397
68,842
—
—
495
1,683,809
22,576
13,913
1,370
239,682
—
83,129
(15,011)
—
—
55,618
$
1
$3,686,203
$185,610
$2,085,086
$(2,272)
$ 361,190
$
6,315,818
$
—
—
—
—
—
—
—
$1,161,984
—
—
289,590
42,227
11,216
40,599
$
—
—
—
—
17,052
—
5,780
$ 725,662
—
—
—
41,815
1,466
10,037
$
$ 171,869
117,269
50,000
(289,590)
(7,968)
—
—
$
2,059,515
117,269
50,000
—
90,854
12,682
56,416
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,545,616
22,832
778,980
Commitments and contingencies
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests in JBG SMITH LP . . . . . . . . . . . . . . . . . . .
Noncontrolling interests in consolidated subsidiaries . . . . . . . . . . . . . .
1
—
—
2,140,292
—
295
—
162,778
—
1,050,598
251,650
3,858
LIABILITIES AND EQUITY
Mortgages payable, net of deferred financing costs . . . . . . . .
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . .
Unsecured term loan . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to Vornado . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . .
Identified intangible liabilities, net of accumulated amortization
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1
2,140,587
162,778
1,306,106
1
$3,686,203
$185,610
$2,085,086
—
—
—
(2,272)
—
—
—
—
—
—
—
—
—
—
—
(2,272)
—
—
(2,272)
—
—
—
—
$(2,272)
4,074
—
1,374,428
3,747,443
715,392
35,498
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
—
—
$
5,872,761
(957,270)
4,074
437,229
—
(14,973)
—
—
—
—
—
(75,894)
10,754
4,915,491
510,518
18,641
37,606
289,664
140,329
170,430
53,831
102,356
—
76,952
41,580
2,386,736
167,261
152,349
—
3,358,152
566,777
4,153
319,610
$ 361,190
3,929,082
$
6,315,818
JBG SMITH Properties
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2017
(Unaudited)
(Amounts in thousands)
JBG Included Assets
JBG SMITH
Properties
(AA)
REVENUES
Property rentals . . . . . . . . . . . . . . . . . . . . .
Tenant expense reimbursements . . . . . . . . . . .
Development, management and other service
revenue . . . . . . . . . . . . . . . . . . . . . . . .
Other income and reimbursement from managed
properties . . . . . . . . . . . . . . . . . . . . . . .
97
.
—
5,830
6,941
237
—
—
—
13,008
Total revenues . . . . . . . . . . . . . . . . . . . . . . . .
—
116,272
22,921
21,100
—
(723)
(334)
159,236
. . .
—
33,782
3,918
8,849
—
—
307
46,856
.
.
.
.
.
.
.
.
.
.
—
—
—
—
—
27,740
15,172
13,690
5,841
441
6,941
—
16,923
—
—
5,982
2,768
—
—
527
—
—
—
—
—
(723)
—
—
—
—
Total expenses . . . . . . . . . . . . . . . . . . . . . . . .
—
96,666
27,782
18,126
—
Operating income (loss) . . . . . . . . . . . . . .
Income (loss) from unconsolidated real estate
ventures . . . . . . . . . . . . . . . . . . . . . . .
Interest and other investment income, net . . .
Gain on derivative instruments . . . . . . . . . .
Interest and debt expense . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . .
. . . .
—
19,606
(4,861)
2,974
—
.
.
.
.
.
.
.
.
.
.
—
—
—
—
—
88
896
—
(13,918)
(354)
—
—
—
—
(3,047)
—
—
573
(5,307)
—
Net income (loss) . . . . . . . . . . . . . . . . . . . . . .
Less net income (loss) attributable to noncontrolling
interests in JBG SMITH LLP . . . . . . . . . . . . .
—
6,318
(7,908)
(1,760)
Net income (loss) attributable to shareholders . . . .
—
$
—
—
$
6,318
15,980
—
—
$ (7,908)
—
$ (1,760)
$
—
—
—
$ —
—
(723)
$
—
—
JBG SMITH
Properties
Pro Forma
2,781
.
.
.
.
.
$19,313
1,550
Other
Pro Forma
Adjustments
(GG)
—
.
.
.
.
.
—
—
Elimination
Pro Forma
Adjustments
(FF)
.
.
.
.
.
.
$
Acquisition
of JBG
Unconsolidated
Real Estate
Ventures
(EE)
$ 99,024
8,637
. . . . . .
expenses
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
$
Acquisition
of JBG
Consolidated
Assets
(DD)
—
—
EXPENSES
Depreciation and amortization . . . .
Property operating and reimbursable
from managed properties . . . . . .
Real estate taxes . . . . . . . . . . . .
General and administrative . . . . . .
Transaction costs . . . . . . . . . . . .
Ground rent . . . . . . . . . . . . . . .
.
.
Vornado
Included
Assets
(BB)
Acquisition
of JBG
Operating
Partners
(CC)
$
(334)
17,704
—
—
8,577
(5,841)
—
39,940
17,940
39,190
—
968
(723)
3,043
144,894
—
(3,377)
14,342
(1,743)
—
—
—
—
—
—
—
—
—
—
(831)
—
(754)
—
(1,655)
65
573
(19,979)
(3,401)
(1,743)
—
(4,962)
(10,055)
—
$(1,743)
—
(1,405)
$ —
$(3,557)
(1,405)
$
Weighted average shares outstanding—basic and
diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share—basic and diluted . . . . . . . . .
118,337
10,187
(8,650)
118,540
$
(0.07)
JBG SMITH Properties
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
(Unaudited)
(Amounts in thousands)
JBG Included Assets
JBG SMITH
Properties
(AA)
REVENUES
Property rentals . . . . . . . . . . . . . . . . . . . . .
Tenant expense reimbursements . . . . . . . . . . .
Development, management and other service
revenue . . . . . . . . . . . . . . . . . . . . . . . .
Other income and reimbursement from managed
properties . . . . . . . . . . . . . . . . . . . . . . .
98
—
17,078
.
—
21,573
28,988
965
—
Total revenues . . . . . . . . . . . . . . . . . . . . . . . .
—
478,519
98,738
83,597
—
. . .
—
133,343
15,673
40,304
—
.
.
.
.
.
.
.
.
.
.
—
—
—
—
—
115,853
57,784
50,416
6,476
1,854
28,988
—
70,677
—
—
24,676
10,573
—
—
2,110
—
—
—
—
—
(3,020)
—
—
—
—
Total expenses . . . . . . . . . . . . . . . . . . . . . . . .
—
365,726
115,338
77,663
—
Operating income (loss) . . . . . . . . . . . . . .
Loss from unconsolidated real estate ventures
Interest and other investment income, net . . .
Gain on derivative instruments . . . . . . . . . .
Loss on disposal of equipment . . . . . . . . . .
Interest and debt expense . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
—
—
—
—
—
—
—
112,793
(1,242)
3,287
—
—
(51,781)
(1,083)
(16,600)
—
—
—
(9)
—
(13,325)
5,934
—
4
414
—
(21,567)
—
—
(15,067)
—
—
—
—
—
. . . . . . . . . .
noncontrolling
. . . . . . . . . .
. . . . . . . . . .
—
61,974
(29,934)
(15,215)
(15,067)
Net income (loss) . . . . . . . . . . . .
Less net income (loss) attributable to
interests in . . . . . . . . . . . . . . .
JBG SMITH LP . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Net income (loss) attributable to shareholders . . . .
$
—
—
—
$ 61,974
—
—
$ 76,486
6,146
69,750
—
—
$(29,934)
—
$(15,215)
$
—
—
Elimination
Pro Forma
Adjustments
(FF)
.
.
.
.
.
.
$
Acquisition
of JBG
Unconsolidated
Real Estate
Ventures
(EE)
$401,577
38,291
. . . . . .
expenses
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
$
Acquisition
of JBG
Consolidated
Assets
(DD)
—
—
EXPENSES
Depreciation and amortization . . . .
Property operating and reimbursable
from managed properties . . . . . .
Real estate taxes . . . . . . . . . . . .
General and administrative . . . . . .
Transaction costs . . . . . . . . . . . .
Ground rent . . . . . . . . . . . . . . .
.
.
Vornado
Included
Assets
(BB)
Acquisition
of JBG
Operating
Partners
(CC)
—
—
$(15,067)
$
—
—
(5,058)
—
(5,058)
Other
Pro Forma
Adjustments
(GG)
$
—
—
JBG SMITH
Properties
Pro Forma
$
(3,068)
78,702
—
51,526
(3,068)
652,728
1,227
190,547
—
—
33,715
(6,476)
—
166,497
68,357
154,808
—
3,964
(3,020)
28,466
584,173
(2,038)
—
—
—
—
—
—
(31,534)
—
(3,290)
—
—
(4,292)
—
68,555
(16,309)
1
414
(9)
(77,640)
(14,408)
(2,038)
(39,116)
(39,396)
—
—
$(2,038)
(5,505)
$(33,611)
(5,505)
$
Weighted average shares outstanding—basic and
diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share—basic and diluted . . . . . . . . .
478,063
44,437
(33,891)
118,540
$
(0.29)
Notes to Pro Forma Combined Financial Statements (unaudited)
1.
Adjustments to Unaudited Pro Forma Combined Balance Sheet
The adjustments to the unaudited pro forma combined balance sheet as of March 31, 2017 are
as follows (dollar amounts in thousands, except per share and common limited partnership unit
amounts):
(A)
Represents JBG SMITH, the Maryland real estate investment trust that was formed on
October 27, 2016, which will be the ultimate parent entity upon the completion of the
transaction. JBG SMITH has had no corporate activity since its formation other than the
issuance of 1,000 common shares of beneficial interest ($0.01 par value per share) for a total of
$1 on November 22, 2016. JBG SMITH expects to conduct substantially all of its operations
and make substantially all of its investments through JBG SMITH LP, its operating partnership.
At such time JBG SMITH, as the sole general partner of JBG SMITH LP, is expected to own
86% of the common limited partnership units of JBG SMITH LP and control JBG SMITH LP.
Accordingly, under accounting principles generally accepted in the United States of America,
or GAAP, JBG SMITH will consolidate the assets, liabilities and results of operations of JBG
SMITH LP and its subsidiaries.
(B)
Represents the unaudited historical combined balance sheet of the Vornado Included Assets as
of March 31, 2017. For detailed information of the structure of the Vornado Included Assets,
refer to the audited historical combined financial statements and accompanying notes
appearing elsewhere in this information statement. Because the Vornado Included Assets are
deemed the accounting acquirer, all of their assets, liabilities and results of operations will be
recorded at their historical cost basis.
(C)
Represents the acquisition of the JBG Included Assets which are comprised of (i) 100% of the
ownership interests in certain assets and less than 100% of the ownership interests in certain real
estate ventures owned by the JBG Parties and (ii) JBG Operating Partners, a real estate services
company providing investment, development, asset and property management, leasing, construction
management and other services primarily to the assets owned, directly or indirectly, by the
contributing JBG Funds. Consideration to the JBG Parties with respect to the acquisitions referred
to in clause (i) above will be in the form of common shares, common limited partnership units
and, if necessary in order for the JBG Parties to provide consideration in accordance with the
MTA to JBG investors who are not accredited investors, cash. Consideration will be paid with
respect to the acquisition of JBG Operating Partners described in clause (ii) above in the form of
common limited partnership units of JBG SMITH LP. JBG Operating Partners is owned by 20
unrelated individuals. 19 of these individuals will become employees of JBG SMITH and three of
these individuals will become members of the board of trustees.
The acquisition of the JBG Included Assets (including JBG Operating Partners) will be
accounted for under the acquisition method of accounting in accordance with ASC 805,
Business Combinations. Although the MTA prescribes the series of acquisition transactions that
will occur and the agreed-upon values for each of the JBG Included Assets (including JBG
Operating Partners), the acquisition will be accounted for as a single integrated transaction.
The transaction terms were negotiated by and among Vornado and certain owners of JBG
Operating Partners on behalf of the investors in the JBG Funds and the other owners of JBG
Operating Partners, and the transaction documents were executed concurrently and in
contemplation of one another. The fair value of the aggregate purchase consideration will be
allocated based on the estimated fair value of the assets acquired and liabilities assumed on the
date of acquisition.
A portion of the common limited partnership unit consideration, paid to certain of the owners
of JBG Operating Partners, with an estimated fair value of $140,974 is subject to post
99
combination employment with vesting periods of between 31 and 60 months. In accordance
with GAAP, consideration that is subject to future employment is not considered a component
of the purchase price for the business combination and should be recognized as compensation
expense in accordance with ASC Topic 718 Share-based Payments.
The acquisition resulted in goodwill because the purchase price exceeded the estimated fair
value of the identifiable net assets acquired in an amount of $53,831.
The following preliminary allocation of the purchase price is based on preliminary estimates
and assumptions and is subject to change based on a final determination of the fair value of
the purchase consideration and assets acquired and liabilities assumed:
JBG
Operating
Partners
JBG Consolidated
Assets and
Unconsolidated
Real Estate
Ventures
Total JBG
Included Assets
Fair value of purchase consideration
Cash, common shares and common
limited partnership units . . . . . . . . . . .
Mortgages payable assumed . . . . . . . . . .
$162,778
—
$1,302,248
725,662
$1,465,026
725,662
Total consideration paid . . . . . . . . . . .
$162,778
$2,027,910
$2,190,688
$
$ 440,111
693,641
548,144
1,913
22,576
13,913
$ 440,111
693,641
548,144
8,726
22,576
13,913
Fair value of assets acquired and liabilities
assumed
Land . . . . . . . . . . . . . . . . . . . . . . . . . .
Building and improvements . . . . . . . . . .
Construction in progress . . . . . . . . . . . .
Leasehold improvements and equipment .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated real estate
ventures . . . . . . . . . . . . . . . . . . . . . .
Identified intangible assets . . . . . . . . . . .
Identified intangible liabilities . . . . . . . .
Other assets acquired (liabilities
assumed), net . . . . . . . . . . . . . . . . . .
Noncontrolling interests in consolidated
subsidiaries . . . . . . . . . . . . . . . . . . . .
—
—
—
6,813
—
—
24
84,397
—
2,702
—
Net assets acquired . . . . . . . . . . . . . .
93,936
Goodwill . . . . . . . . . . . . . . . . . . . . . . . .
68,842
Total consideration paid . . . . . . . . . . .
$162,778
100
239,682
83,129
(1,466)
239,706
167,526
(1,466)
5,136
7,838
(3,858)
(3,858)
2,042,921
(15,011)
$2,027,910
2,136,857
53,831
$2,190,688
The following table presents a reconciliation of stipulated transaction values in the MTA to the
pro forma consideration paid in the table above:
Implied Gross Asset Value per MTA . . .
Portion of consideration attributable to
the acquisition of JBG management
company reflected as future
compensation expense . . . . . . . . . . . .
Our share of mortgages payable in
unconsolidated real estate ventures . . .
Fair value adjustment to common limited
partnership units to be issued due to
transfer restrictions . . . . . . . . . . . . . .
Capital costs incurred from the MTA
valuation date through March 31, 2017
and other adjustments . . . . . . . . . . . .
.
.
.
.
JBG
Operating
Partners
JBG Consolidated
Assets and
Unconsolidated
Real Estate
Ventures
Total JBG
Included Assets
$ 335,000
$2,093,000
$2,428,000
(140,974)
—
(31,248)
—
(140,974)
(213,796)
(213,796)
(20,404)
(51,652)
.
—
169,110
169,110
Pro forma—total consideration paid . . . . .
$ 162,778
$2,027,910
$2,190,688
Capital required for development and redevelopment projects subsequent to the initial
valuation of the assets and liabilities through closing of this transaction will be funded by
Vornado and JBG, as applicable, and any required adjustment will be reflected in the final
purchase price allocation.
The contribution of certain JBG Included Assets to JBG SMITH in connection with the
transaction will require the consent of certain third parties, including joint venture partners, lenders
and ground lessors of JBG and Vornado. The MTA requires the parties to obtain such consents,
and with respect to any required debt consent, to seek to prepay or refinance the applicable loan if
such consent is not received within 120 days following the date of the MTA. If (i) a consent (or,
with respect to debt consents, a prepayment or refinancing in a manner that does not restrict the
transaction and meets certain other terms set forth in the MTA) is not obtained with respect to
certain specified JBG Included Assets prior to the date that is 20 days before the anticipated
completion of the transaction, or (ii) certain JBG Included Assets for which certain specified
actions have not been resolved prior to the date that is 20 days before the anticipated completion
of the transaction, such assets will be deemed to be Kickout Interests as described under ‘‘The
Separation and the Combination—The Combination—The MTA—Kickout Interests’’ and will not
be contributed as part of the transaction.
The fair value of the mortgages payable assumed was determined using current market interest
rates for comparable debt financings. The carrying value of cash, restricted cash, working
capital balances, leasehold improvements and equipment for JBG Operating Partners, and
other assets acquired and liabilities assumed approximates fair value.
The allocation to tangible assets (land, building and improvements, construction in progress, and
leasehold improvements and equipment) is based upon management’s determination of the value
of the asset as if it were vacant. This ‘‘as-if vacant’’ value is estimated using an income, or
discounted cash flow, approach that relies upon internally determined assumptions that we believe
are consistent with current market conditions for similar assets. The most significant assumptions in
determining the allocation of the purchase price to tangible assets are the exit capitalization rate,
discount rate, estimated market rents and hypothetical expected lease-up periods.
101
The allocation to identified intangible assets related to the JBG Included Assets other than
JBG Operating Partners (above or below market component of in-place leases, including
ground leases, the value of in-place leases and options to acquire land or enter into a ground
lease) is based on the following:
• The value allocable to the above or below market component of an acquired in-place lease
is determined based upon the present value (using a discount rate which reflects the risks
associated with the acquired leases) of the difference between (i) the contractual amounts
to be received pursuant to the lease over its remaining term and (ii) management’s estimate
of the amounts that would be received using fair market rates over the remaining term of
the lease. Amounts allocated to above market leases are recorded as identified intangible
assets, and amounts allocated to below market leases are recorded as identified intangible
liabilities. These intangibles are amortized to rental income over the remaining terms of the
respective leases.
• Factors considered in determining the value allocable to in-place leases include estimates,
during hypothetical lease-up periods, related to space that is actually leased at the time of
acquisition. These estimates include (i) lost rent at market rates, (ii) fixed operating costs
that will be recovered from tenants and (iii) theoretical leasing commissions required to
execute similar leases. These intangible assets are recorded as identified intangible assets
and are amortized over the remaining term of the existing lease.
The allocation to intangible assets related to JBG Operating Partners (in-place property
management, leasing, asset management, and development and construction management
contracts) is based on the estimated fair value of the management contracts. Factors considered
in determining the value allocable to these management contracts include revenue and expense
projections over the estimated life of each contract, respectively. The projections were then
present valued using a market discount rate to calculate fair value. These intangibles are
amortized over the estimated life of the contract.
The allocation to the noncontrolling interests in the JBG Included Assets that are less than
100% owned and unconsolidated (JBG Unconsolidated Real Estate Ventures) is based on the
estimated fair value of the identified assets acquired of those entities exceeding the fair value
of the liabilities assumed.
The following tables present a summary of the JBG Included Assets acquired and JBG
SMITH’s ownership percentage (wholly owned, less than 100% owned and consolidated, and
less than 100% owned and unconsolidated).
102
The following table represents the JBG Included Assets that are 100% owned.
JBG CONSOLIDATED ASSETS—WHOLLY OWNED
RTC—West . . . . . . . . . . . . . . . . . .
800 North Glebe Road . . . . . . . . . .
7200 Wisconsin Avenue . . . . . . . . .
1233 20th Street . . . . . . . . . . . . . .
Summit II . . . . . . . . . . . . . . . . . . .
Summit I . . . . . . . . . . . . . . . . . . .
1600 K Street . . . . . . . . . . . . . . . .
Wiehle Avenue Office Building . . .
1831 Wiehle Avenue . . . . . . . . . . .
4749 Bethesda Avenue Retail . . . . .
CEB Tower at Central Place . . . . . .
RTC—West Retail . . . . . . . . . . . . .
1900 N Street . . . . . . . . . . . . . . . .
4747 Bethesda Avenue . . . . . . . . . .
Fort Totten Square(1) . . . . . . . . . . .
Falkland Chase—South & West . . .
Falkland Chase—North . . . . . . . . .
1221 Van Street . . . . . . . . . . . . . . .
Atlantic Plumbing C—North . . . . .
Atlantic Plumbing C—South . . . . . .
North End Retail . . . . . . . . . . . . . .
Falkland Chase—North Land . . . . .
Wiehle Avenue Development Parcel
1831 Wiehle Avenue Land . . . . . . .
RTC—West Land . . . . . . . . . . . . .
Summit I & II Land . . . . . . . . . . .
Hoffman Town Center . . . . . . . . . .
DCDF—801 17th Street, NE . . . . .
Gallaudet . . . . . . . . . . . . . . . . . . .
Potomac Yard Land Bay G(2) . . . . .
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Office—Operating
Office—Operating
Office—Operating
Office—Operating
Office—Operating
Office—Operating
Office—Operating
Office—Operating
Office—Operating
Office—Recently Delivered
Office—Under Construction
Office—Under Construction
Office—Near-term Development
Office—Near-term Development
Multifamily—Operating
Multifamily—Operating
Multifamily—Operating
Multifamily—Under Construction
Multifamily—Under Construction
Multifamily—Under Construction
Other—Operating
Future Development
Future Development
Future Development
Future Development
Future Development
Future Development
Future Development
Future Development
Future Development
(1)
We have negotiated an agreement with our joint venture partner to recapitalize this
asset and increase our ownership from 99.4 percent to 100.0 percent.
(2)
We have negotiated an agreement with our joint venture partner to recapitalize this
asset and increase our ownership from 98.0 percent to 100.0 percent.
The following table reflects the ownership interests in the JBG Included Assets that are less
than 100% owned and are consolidated.
JBG CONSOLIDATED
ASSETS—PARTIALLY-OWNED
Akridge
West Half II . . . . . . . . . . . . .
West Half III . . . . . . . . . . . .
TYPE
Multifamily—Under Construction
Multifamily—Under Construction
103
PERCENT
OWNERSHIP
94.2%
94.2%
The following table reflects the ownership interests in the JBG Unconsolidated Real Estate
Ventures.
JBG UNCONSOLIDATED REAL ESTATE
VENTURES
MFP-JBGU
L’Enfant Plaza Office—East . . . .
L’Enfant Plaza Office—North . . .
Rosslyn Gateway—North . . . . . .
NoBe II Office . . . . . . . . . . . . .
Rosslyn Gateway—South . . . . . . .
11333 Woodglen Drive . . . . . . . .
Courthouse Metro Office . . . . . .
Woodglen . . . . . . . . . . . . . . . . .
L’Enfant Plaza Retail . . . . . . . . .
L’Enfant Plaza Office—Southeast
The Alaire . . . . . . . . . . . . . . . . .
The Terano . . . . . . . . . . . . . . . .
Galvan . . . . . . . . . . . . . . . . . . .
Capitol Point—North Option . . . .
Capitol Point—North . . . . . . . . .
L’Enfant Plaza Office—Center . .
Rosslyn Gateway—South Land . .
Rosslyn Gateway—North Land . .
5615 Fishers Drive . . . . . . . . . . .
12511 Parklawn Drive . . . . . . . . .
Twinbrook . . . . . . . . . . . . . . . . .
CBREI Venture
Pickett Industrial Park . . . . . . . .
The Foundry . . . . . . . . . . . . . . .
Fairway Apartments . . . . . . . . . .
The Gale Eckington . . . . . . . . . .
Atlantic Plumbing . . . . . . . . . . .
Stonebridge at Potomac Town
Center—Phase I . . . . . . . . . . .
Stonebridge at Potomac Town
Center—Phase II . . . . . . . . . .
Stonebridge at Potomac Town
Center—Phase III . . . . . . . . . .
Fairway Land . . . . . . . . . . . . . . .
Brandywine
1250 1st Street . . . . . . . . . . . . . .
50 Patterson Street . . . . . . . . . . .
51 N Street . . . . . . . . . . . . . . . .
MRP Realty
965 Florida Avenue . . . . . . . . . .
Berkshire
7900 Wisconsin Avenue(1) . . . . . .
(1)
TYPE
PERCENT
OWNERSHIP
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Office—Operating
Office—Operating
Office—Operating
Office—Operating
Office—Operating
Office—Operating
Office—Operating
Office—Operating
Office—Operating
Office—Under Construction
Multifamily—Operating
Multifamily—Operating
Multifamily—Operating
Future Development
Future Development
Future Development
Future Development
Future Development
Future Development
Future Development
Future Development
49.0%
49.0%
18.0%
18.0%
18.0%
18.0%
18.0%
18.0%
49.0%
49.0%
18.0%
1.8%
1.8%
59.0%
59.0%
49.0%
18.0%
18.0%
18.0%
18.0%
18.0%
.
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.
Office—Operating
Office—Operating
Multifamily—Operating
Multifamily—Operating
Multifamily—Operating
10.0%
9.9%
10.0%
5.0%
64.0%
.
Other—Operating
10.0%
.
Other—Near-term Development
10.0%
.
.
Future Development
Future Development
10.0%
10.0%
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.
Future Development
Future Development
Future Development
30.0%
30.0%
30.0%
. Multifamily—Near-term Development
70.0%
. Multifamily—Near-term Development
50.0%
In May 2017, we recapitalized this asset and decreased our ownership from 100.0 percent to 50.0 percent.
104
The following table reflects the fair value of the depreciable tangible and identified intangible
assets and liabilities and their related useful lives for JBG Operating Partners and the JBG
Consolidated Assets:
JBG
JBG
Operating Consolidated
Total
Partners
Assets
Fair Value
Tangible Assets:
Building and improvements . .
Tenant improvement . . . . . . .
—
—
$643,490
50,151
Leasehold improvements . . . .
3,880
—
Equipment . . . . . . . . . . . . .
2,933
1,913
210
$ 57,980
$ 58,190 Weighted average life of the
respective leases
Above-market real estate
leases . . . . . . . . . . . . . . .
—
3,178
Below-market ground leases . .
—
3,102
Non-compete agreement . . . .
Management and leasing
contracts . . . . . . . . . . . . .
187
—
3,178 Weighted average life of the
respective leases
3,102 Remaining life of the
respective leases
187 Remaining life of contract
84,000
—
Identified Intangible Assets:
In-place leases . . . . . . . . . . .
Identified Intangible
Liabilities:
Below-market real estate
leases . . . . . . . . . . . . . . .
$
Useful Life
$
$
—
$ 1,466
$643,490 15 - 40 years
50,151 Shorter of useful life or
weighted average life of the
respective leases
3,880 Shorter of useful life or
weighted average life of the
respective leases
4,846 5 years
84,000 Estimated life of contracts,
ranging between 4 - 7 years
$
1,466 Weighted average life of the
respective leases
In utilizing these useful lives for determining the pro forma adjustments, JBG SMITH
considered the length of time the asset had been in existence, the maintenance history, as well
as anticipated future maintenance, and any contractual stipulations that might limit the useful
life.
The table below presents the pro forma balance sheet of JBG Operating Partners, as of
March 31, 2017, as adjusted to reflect certain pro forma adjustments. The historical
information is derived from the consolidated balance sheet of JBG/Operating Partners, L.P. and
its subsidiaries as of March 31, 2017.
105
Historical
JBG
Operating
Partners
ASSETS
Real estate, at cost:
Leasehold improvements and equipment . . . . . . .
$
5,810
Pro Forma
Adjustments
$
1,003(1)
Acquisition of
JBG
Operating
Partners
$
5,810
—
Real estate, net . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . .
Tenant and other receivables, net of allowance for
doubtful accounts . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated real estate ventures .
Identified intangible assets, net of accumulated
amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable and other assets, including prepaid
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
5,810
5,508
1,003
(5,508)(2)
6,813
—
.
.
27,002
124
(1,963)(3)
(100)(4)
25,039
24
.
.
1,064
8,967
83,333(5)
59,875(6)
84,397
68,842
.
729
LIABILITIES AND EQUITY
Revolving credit facility . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Shareholders’ equity (deficit) . . . . . . . . . . . . . . . . .
Noncontrolling interests in JBG SMITH LP . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,003
—
6,813
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . .
(234)(7)
$ 49,204
$ 136,406
$
$
9,200
16,798
138,900
164,898
(115,694)
—
$ 49,204
6,813
—
(9,200)(2)
254(8)
(133,120)(9)
(142,066)
115,694(10)
162,778(10)
$ 136,406
495
$185,610
$
—
17,052
5,780
22,832
—
162,778
$185,610
(1)
Reclassification of accounts receivable related to leasehold improvements and equipment being acquired by
JBG SMITH
(2)
Adjustment to repay JBG Operating Partners’ line of credit and reclassification of resulting balance to other
liabilities
(3)
Adjustment to reflect the reclassification described in footnote (1) and elimination of intercompany
receivables
(4)
Elimination of interest in investment excluded from JBG SMITH acquisition
(5)
Adjustment to reflect the fair value of intangible assets being acquired by JBG SMITH related to (i) JBG
Operating Partners’ in-place property management, leasing, asset management, and development and
construction management contracts and (ii) net deferred leasing costs described in footnote (7)
(6)
Adjustment to recognize goodwill for the excess of the purchase price of JBG Operating Partners over the
values specifically assigned to assets being acquired and liabilities being assumed by JBG SMITH
(7)
Reclassification of net deferred leasing costs to identified intangible assets, net of accumulated amortization
and elimination of net loan acquisition costs associated with the repayment of JBG Operating Partners’ line
of credit
(8)
Adjustment to recognize liability associated with JBG SMITH acquisition.
(9)
Adjustment to reflect (i) ($134,125)—termination of JBG Operating Partners’ profit-sharing arrangement
upon JBG SMITH acquisition, (ii) $3,692—reclassification described in footnote (2), (iii) ($3,100)—
elimination of historical straight-line rent liability associated with JBG Operating Partners’ corporate office
lease, (iv) $2,088—deferred revenue associated with JBG SMITH’s share of leasing, predevelopment,
development, and construction management fees received from unconsolidated real estate ventures, and
(v) ($1,675)—reclassification of contingent obligation which will be settled with equity at closing
106
(10)
Elimination of historical partners’ deficit and adjustment for the purchase price associated with the JBG
SMITH acquisition
(D)
Reflects the elimination of $2,272 in accrued receivables and accrued payables associated with
intercompany transactions between JBG Operating Partners and the JBG Consolidated Assets
that will be acquired in connection with the transaction.
(E)
Reflects adjustments to the matters below.
Leasehold Improvements and Equipment / Shareholder’s Equity
Represents $4,074 of capitalized information technology and furniture, fixtures and other
equipment costs.
Cash and Cash Equivalents / Receivable from Vornado / Notes Receivable and Other Assets,
Including Prepaid Expenses / Mortgages Payable, Net of Deferred Financing Costs / Unsecured
Term Loan / Shareholders’ Equity
Reflects (i) the cash contribution of $212,968 and $80,645 by Vornado and JBG, respectively,
(ii) net mortgage borrowings of $215,398 on The Bartlett, (iii) borrowings of $50,000 from JBG
SMITH’s unsecured term loan, (iv) the reimbursement of $38,577 and $28,842 to JBG and
Vornado, respectively, for certain costs incurred by JBG and Vornado in connection with the
transaction, (v) $43,609 repayment of the 1700 & 1730 M Street mortgage loan and (vi) the
payment of $10,754 of financing fees related to the execution of the $1.4 billion credit
agreement. Vornado’s cash contribution is intended to include $75,894 related to the pay down
of its payable to JBG SMITH.
In the event the mortgage lender does not provide consent to transfer of the beneficial
interests in the owner of 2121 Crystal Drive, the $141,015 mortgage will either be defeased or
repaid with a yield maintenance premium and the approximate cost of the defeasance or yield
maintenance premium is estimated to be approximately $25,600, which has not been reflected
as a pro forma adjustment herein.
The reimbursed costs include severance, the preparation and negotiation of the MTA and
related agreements, SEC filings, organizational documents and professional fees.
Tenant and Other Receivables, Net of Allowance for Doubtful Accounts / Shareholders’ Equity
Reflects the $14,973 reclassification of transaction costs recorded as a receivable to
Shareholders’ equity.
Revolving Credit Facility / Payable to Vornado / Shareholders’ Equity
Reflects (i) the $172,321 contribution of Vornado’s note receivable to JBG SMITH at closing
of the combination and (ii) the payoff of the remaining $117,269 Payable to Vornado utilizing
borrowings off of JBG SMITH’s revolving credit facility.
Accounts Payable and Accrued Expenses / Shareholders’ Equity
Reflects the $7,968 reclassification of accrued transaction costs to Shareholders’ equity.
Shareholders’ Equity / Noncontrolling Interests in JBG SMITH LP
Reflects the recognition of $13,095 of compensation expense related to the issuance of JBG
SMITH LP common limited partnership units that vest within 12 months of the completion of
the transaction. Also reflects the recognition of $2,275 of compensation expense related to the
grant of Initial Formation Awards to two individuals who are over the minimum retirement
age, as these awards fully vest immediately upon retirement.
107
Reflects the reclassification of $136,979 from equity to noncontrolling interests in JBG
SMITH LP which represents approximately 6.4% of the Vornado Included Assets not owned
by JBG SMITH.
2. Adjustments to Unaudited Pro Forma Combined Statements of Operations
The adjustments to the unaudited pro forma combined statements of operations for the three
months ended March 31, 2017 and the year ended December 31, 2016 are as follows (dollar
amounts in thousands):
(AA)
Represents the registrant, which will be the ultimate parent entity upon the completion of the
distribution of the Vornado Included Assets from Vornado and the acquisition of the JBG
Included Assets.
(BB)
Reflects the unaudited historical combined statements of operations of the Vornado Included
Assets for the three months ended March 31, 2017 and the year ended December 31, 2016.
Because the Vornado Included Assets are deemed the accounting acquirer, all of their assets,
liabilities and results of operations will be recorded at their historical cost basis.
(CC) The table below presents the pro forma statements of operations of JBG Operating Partners
for the three months ended March 31, 2017 and the year ended December 31, 2016, as
adjusted to reflect certain pro forma adjustments. The historical information is derived from
the consolidated statement of income of JBG/Operating Partners, L.P. and its subsidiaries.
For the Three Months Ended March 31, 2017
Historical
Acquisition of
JBG Operating
Pro Forma
JBG Operating
Partners
Adjustments
Partners
Revenues
Development, management and other
services revenue . . . . . . . . . . . . . . .
Other income and reimbursement from
managed properties . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . .
Expenses
Depreciation and amortization . . . . . .
Property operating and reimbursable
expenses from managed properties . .
General and administrative . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . .
Income (loss) from unconsolidated real
estate ventures . . . . . . . . . . . . . . . .
Interest and debt expense . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . .
Net Income (Loss) . . . . . . . . . . . . . . . . .
.
$26,393
$(10,413) (1)
$15,980
.
.
—
26,393
6,941 (2)
(3,472)
6,941
22,921
.
441
3,477 (3)
3,918
.
.
.
.
—
18,210
18,651
7,742
6,941 (2)
(1,287) (4)
9,131
(12,603)
6,941
16,923
27,782
(4,861)
.
.
.
.
91
(95)
(52)
$ 7,686
(91) (5)
95 (6)
(2,995) (7)
$(15,594)
—
—
(3,047)
$ (7,908)
108
For the Year Ended December 31, 2016
Historical
Acquisition of
JBG Operating
Pro Forma
JBG Operating
Partners
Adjustments
Partners
Revenues
Development, management and other
services revenue . . . . . . . . . . . . . . . . .
Other income and reimbursement from
managed properties . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . .
Expenses
Depreciation and amortization . . . . . . .
Property operating and reimbursable
expenses from managed properties . .
General and administrative . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . .
Income (loss) from unconsolidated real
estate ventures . . . . . . . . . . . . . . . . .
Gain on acquisition of affiliate, net . . .
Loss on disposal of equipment . . . . . . .
Interest and debt expense . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . .
Net Income (Loss) . . . . . . . . . . . . . . . . .
$ 97,646
$(27,896)(1)
$ 69,750
—
97,646
28,988 (2)
1,092
28,988
98,738
1,827
13,846 (3)
15,673
.
.
.
.
.
—
98,703
100,530
(2,884)
28,988 (2)
(28,026)(8)
14,808
(13,716)
28,988
70,677
115,338
(16,600)
.
.
.
.
.
.
539
3,412
(9)
(303)
(386)
369
(539)(5)
(3,412)(9)
—
303 (6)
(12,939)(7)
$(30,303)
—
—
(9)
—
(13,325)
$(29,934)
(1)
$
Elimination of development, management and other service revenue associated with the
acquisition of consolidated assets by JBG SMITH
(2)
Adjustment to reflect the payment for and reimbursement of property operating
expenses
(3)
Adjustment to depreciation and amortization expense based on the estimated fair value
of JBG Operating Partners’ real estate and intangible assets assuming JBG SMITH
acquisition occurred as of January 1, 2016
(4)
Termination of JBG Operating Partners’ profit sharing arrangement upon JBG SMITH
acquisition and elimination of other miscellaneous expense not applicable to continuing
operations of JBG SMITH
(5)
Elimination of income attributable to investment excluded from JBG SMITH acquisition
(6)
Adjustment to eliminate interest expense for repayment of JBG Operating Partners’ line
of credit
(7)
Adjustment to record the income tax provision on pro forma fee income from JBG
Operating Partners’ taxable REIT subsidiaries using an estimated 40% effective income
tax rate
(8)
Termination of JBG Operating Partners’ profit-sharing and asset management fee credit
arrangements upon JBG SMITH acquisition and elimination of other miscellaneous
expense not applicable to continuing operations of JBG SMITH
(9)
Elimination of the gain on the acquisition of the remaining 66.7% controlling interest in
JBG/Rosenfeld Retail Properties, LLC. The gain is based on the remeasurement of the
previously held unconsolidated 33.3% equity interest at fair value. The acquisition of the
equity interest was made to facilitate the consummation of the transaction with Vornado
and was eliminated because it does not have a continuing impact on the operations of
the combined entity.
(DD) The table below presents the historical combined statements of revenues and expenses from
real estate operations of the operating JBG Consolidated Assets for the three months ended
109
March 31, 2017 and the year ended December 31, 2016, as adjusted to reflect certain pro
forma adjustments:
For the Three Months Ended March 31, 2017
JBG
Acquisition
Consolidated
of JBG
Operating
Consolidated
(2)
(3)
Assets(1)
Assets
Revenue:
Property rentals . . . . . . . . . . . . . . . . . . . . . .
Tenant expense reimbursement . . . . . . . . . . . .
Other revenue . . . . . . . . . . . . . . . . . . . . . . .
$18,769
1,545
236
$320
—
—
$224
5
1
$19,313
1,550
237
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . .
$20,550
$320
$230
$21,100
Expenses:
Property operating . . . . . . . . . . . . . . . . . . . .
Real estate taxes . . . . . . . . . . . . . . . . . . . . . .
Management fees . . . . . . . . . . . . . . . . . . . . .
$ 5,114
2,516
598
$ —
—
—
$257
252
13
$ 5,371
2,768
611
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,228
$ —
$522
$ 8,750
For the Year Ended December 31, 2016
JBG
Acquisition
Consolidated
of JBG
Operating
Consolidated
(1)
(2)
(3)
Assets
Assets
Revenue:
Property rentals . . . . . . . . . . . . . . . . . . . .
Tenant expense reimbursement . . . . . . . . .
Other revenue . . . . . . . . . . . . . . . . . . . . .
$70,242
6,072
961
$2,706
—
—
$3,538
74
4
$76,486
6,146
965
Total revenue . . . . . . . . . . . . . . . . . . . . . . .
$77,275
$2,706
$3,616
$83,597
Expenses:
Property operating . . . . . . . . . . . . . . . . . .
Real estate taxes . . . . . . . . . . . . . . . . . . .
Management fees . . . . . . . . . . . . . . . . . . .
$20,942
9,511
2,283
$
—
—
—
$1,341
1,062
110
$22,283
10,573
2,393
Total expenses . . . . . . . . . . . . . . . . . . . . . .
$32,736
$
—
$2,513
$35,249
(1)
This information is derived from Note 3 to the combined statements of revenues and expenses from real
estate operations of the JBG Real Estate Operating Assets for the three months ended March 31, 2017 and
the year ended December 31, 2016, which were prepared for the purposes of complying with Rule 3-14 of
Regulation S-X promulgated under the Securities Act.
(2)
Reflects the net impact of straight-line rents and the amortization of above/below market lease intangibles
based on the preliminary purchase price allocation described in Note C.
(3)
Reflects operating revenue and expenses related to incidental operations for three under construction and
near-term development assets to be acquired by JBG SMITH but not included in the combined statements
of revenue and expenses from real estate operations because they are not eligible to be the subject of S-X
3-14 financial statements as they are not operating assets. Such assets have generated immaterial incidental
operating revenue and expenses.
Pro forma depreciation and amortization expense for the three months ended March 31, 2017
and the year ended December 31, 2016 has been calculated and presented based on the
estimated fair values of the real estate and identified intangible assets described in Note C.
Estimated useful lives are noted in Note C.
Above- and below-market leases are amortized as an increase or decrease to rental income,
respectively, over the lives of the respective leases. Amortization of acquired in-place leases,
excluding ground leases, is included as a component of depreciation and amortization. Ground
lease amortization is presented as ground rent expense.
110
(EE)
(FF)
Interest expense on assumed debt associated with the JBG Consolidated Assets is calculated
using the contractual interest rate for each assumed loan and adjusted for the amortization of
the net premium resulting from the recognition of the assumed debt at fair value based on
market loan interest rates. The contractual interest rates range from 2.58% to 8.52%. If
interest rates increase or decrease 0.125%, the impact to interest expense would be $137 and
$557 for the three months ended March 31, 2017 and the year ended December 31, 2016,
respectively.
Reflects JBG SMITH’s share of the income (loss) from its interests in the JBG Unconsolidated
Real Estate Ventures accounted for under the equity method, including adjustment for the
basis difference between the fair value of the interest in the JBG Unconsolidated Real Estate
Ventures and the proportionate interest in the depreciable assets held by each venture. This
basis difference is amortized over the estimated life of the underlying assets and recognized as
a component of equity in earnings from unconsolidated real estate ventures.
Development, Management and Other Service Revenues / Property Operating and Reimbursable
Expenses from Managed Properties
The table below presents the detail of development, management and other service revenues
and reflects adjustments to (1) eliminate intercompany property management fees and
intercompany fees for legal, marketing and other services, respectively, provided by JBG
Operating Partners to the operating JBG Consolidated Assets that will be acquired in connection
with the transaction and (2) remove management fees of $334 and $3,068 for the three months
ended March 31, 2017 and the year ended December 31, 2016, respectively, related to Vornado’s
management of the Gould Rosslyn joint venture which is not included in Vornado Included
Assets.
For the Three Months Ended March 31, 2017
Vornado
JBG
Elimination /
Included Operating Other Pro Forma
Pro Forma
Assets
Partners
Adjustments
JBG SMITH
Asset management fees . . . . .
Property management fees . . .
Leasing fees . . . . . . . . . . . . .
Development fees . . . . . . . . .
Construction management fees
Other service revenues . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total development, management and
other service revenues . . . . . . . . . .
$
—
2,197
333
144
36
71
$ 5,212
5,336
2,527
1,898
662
345
$
—
(866)
(25)
(144)
(22)
—
$ 5,212
6,667
2,835
1,898
676
416
$2,781
$15,980
$(1,057)
$17,704
Vornado
Included
Assets
Asset management fees . . . . .
Property management fees . . .
Leasing fees . . . . . . . . . . . . .
Development fees . . . . . . . . .
Construction management fees
Other service revenues . . . . .
(GG)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
For the Year Ended December 31, 2016
JBG
Elimination /
Operating Other Pro Forma
Pro Forma
Partners
Adjustments
JBG SMITH
.
.
.
.
.
.
$
—
10,643
4,635
396
1,181
223
$23,176
21,792
4,677
11,803
4,830
3,472
$
—
(7,219)
(76)
(396)
(41)
(394)
$23,176
25,216
9,236
11,803
5,970
3,301
Total development, management and
other service revenues . . . . . . . . . .
$17,078
$69,750
$(8,126)
$78,702
Other Pro Forma Adjustments
111
Depreciation and Amortization
Represents amortization expense of $307 and $1,227 for the three months ended March 31, 2017
and the year ended December 31, 2016, respectively, related to anticipated capitalized
information technology and furniture, fixtures and other equipment costs.
General and Administrative Expenses
Three Months
Ended
March 31,
2017
Year Ended
December 31,
2016
$ 9,798
(1,221)
$ 8,577
$ 39,194
(5,479)
$ 33,715
.
.
.
$30,613
8,577
39,190
$121,093
33,715
154,808
.
.
16,460
$22,730
65,019
$ 89,789
Pro forma adjustments(1):
Non-cash compensation expense(2) . . . . . . . . . . . . . . . . . . . . .
Capitalized wages(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total pro forma adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expense before pro forma
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments as above . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total pro forma general and administrative expense . . . . . . . .
Estimated allocation to third-party asset management and real
estate services(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expense—corporate . . . . . . . . . . .
(1)
(2)
Pro forma general and administrative expenses are not necessarily indicative of what our actual general and
administrative expenses will be as a standalone public company. Pro forma amounts include an allocation of
Vornado’s corporate general and administrative expenses of $6,738 and $20,690 for the three months ended
March 31, 2017 and the year ended December 31, 2016, respectively, which may not necessarily equal the
additional general and administrative expenses of JBG SMITH as a result of being a standalone public
company. In addition, annual general and administrative expenses will be elevated during the first five years as
a separate public company as our expenses will include non-cash compensation expense resulting from (i) the
acquisition of JBG Operating Partners (representing the amortization of one-half of the fair value of common
limited partnership units to be issued to the partners of JBG Operating Partners at the closing of the
transaction which are subject to vesting over five years) and (ii) the amortization of the fair value of Initial
Formation Awards (which are reflected here and presented in greater detail in (2) below) and (iii) ramp up of
non-cash compensation expense associated with the JBG SMITH equity compensation plan, including the 2017
Equity Grant and other grants made in connection with the 2017 Plan, as described below under
‘‘Compensation Discussion and Analysis—Initial Equity Grants,’’ (which are not included in the adjustments in
Note GG). Separate from the above, we currently estimate that synergies will result in annual general and
administrative expense savings of approximately $35 million over the next 18 months which will reduce
corporate general and administrative expenses of our third-party asset management and real estate services
business. There can be no assurance that the cost savings from synergies will be achieved in full or at all.
Reflects adjustments related to (i) non-cash compensation expense related to the amortization of the fair value
of the portion of common limited partnership units transferred to the partners of JBG Operating Partners in
connection with their contribution of the JBG management company, which vest, subject to continued
employment, over five years and (ii) non-cash compensation expense related to the amortization of the fair
value of the Initial Formation Awards which vest, subject to continued employment, over five years.
Estimated amortization of the fair value of common
limited partnership units transferred to the partners
of JBG Operating Partners in connection with their
contribution of the JBG management company that
are subject to continued employment with JBG
SMITH of at least three years (fair value of
$127,879)(a) . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated amortization of the fair value of Initial
Formation Awards (fair value of $16,925)(b) . . . . . .
Total non-cash compensation expense . . . . . . . . . . .
(a)
Three Months
Ended
March 31,
2017
Year Ended
December 31,
2016
$8,758
$35,033
1,040
4,161
$9,798
$39,194
Excludes the amortization of the fair value of common limited partnership units transferred to the
partners of JBG Operating Partners in connection with their contribution of the JBG management
112
(b)
(3)
(4)
company that are only subject to continued employment of 12 months. The fair value of these
common limited partnership units is $13,095 and the amortization of the fair value of these common
limited partnership units is recognized as an adjustment to Shareholder’s equity as described in
Note E.
Excludes the amortization of the fair value of Initial Formation Awards granted to two individuals
who are over the minimum retirement age, as these awards fully vest immediately upon retirement.
The fair value of these Initial Formation Awards is $2,275 and amortization of the fair value of these
Initial Formation Awards is recognized as an adjustment to Shareholders’ equity as described in
Note E.
JBG Operating Partners has provided development, construction and other services to the JBG
Consolidated Assets. JBG Operating Partners recorded revenue for these services and incurred
payroll and related costs reported as general and administrative expense. On a pro forma basis, these
costs would be capitalized at the property level, and no revenue or general and administrative cost
would be recorded. Accordingly, $1,221 and $5,479 for the three months ended March 31, 2017 and
the year ended December 31, 2016, respectively, are reflected as capitalized wages.
Our third-party asset management and real estate services business provides a wide range of real
estate services to the JBG Funds, other JBG-affiliated entities, joint ventures and third parties with
which we have longstanding relationships, and earns fees for providing such services. A significant
portion of our employees’ time and corresponding overhead cost is attributable to our third-party
asset management and real estate services business. Upon completion of the transaction, we will
allocate general and administrative expenses in proportion to our employee’s time during the
applicable period spent managing assets that will be consolidated in our financial statements (the
proportional amount of general and administrative expense that will be allocated to our corporate
function) versus assets that will not be consolidated in our financial statements (the proportional
amount of general and administrative expense that will be allocated to our third-party asset
management and real estate services business). For the three months ended March 31, 2017 and the
year ended December 31, 2016, approximately $16,460 and $65,019, respectively, of general and
administrative expenses is allocated to our third-party asset management and real estate services
business.
Transaction Costs
Transaction costs incurred of $5,841 and $6,476 for the three months ended March 31, 2017 and
the year ended December 31, 2016, respectively, have been removed as a pro forma adjustment.
Interest and Other Investment Income, net
Reflects the elimination of interest income of $831 and $3,290 for the three months ended
March 31, 2017 and the year ended December 31, 2016, respectively, related to the anticipated
pay down of Vornado’s $75,894 payable to JBG SMITH.
Interest and Debt Expense
Represents the incremental interest expense associated with (i) the $172,321 contribution of
Vornado’s note receivable to JBG SMITH at closing of the combination, (ii) the anticipated
payoff of the $117,269 Payable to Vornado utilizing borrowings under our revolving credit facility
(iii) the anticipated $50,000 draw from our unsecured term loan facility, (iv) the anticipated
$43,609 repayment of the 1700 and 1730 M Street mortgage loan and (v) amortization of
anticipated debt issuance costs related to the $1.4 billion credit facility that we are arranging.
Net Income (Loss) Attributable to Noncontrolling Interests in JBG SMITH LP
Reflects the allocation of net income (loss) to the noncontrolling interests in JBG SMITH LP.
113
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the historical results of operations and liquidity and capital
resources of JBG SMITH as it will exist following the separation but prior to the combination, when
we will own the Vornado Included Assets but will not yet have acquired the JBG Included Assets, and
unless otherwise specified does not include a discussion of the historical results of operations and
liquidity of the JBG Included Assets or pro forma information upon completion of the transaction. You
should read the following discussion in conjunction with the audited combined financial statements and
the corresponding notes, the unaudited interim combined financial statements and the corresponding
notes, and the unaudited pro forma combined financial statements and the corresponding notes
included elsewhere in this information statement. This Management’s Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking statements. The matters
discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that
could cause actual results to differ materially from those made, projected or implied in the forwardlooking statements. Please refer to ‘‘Risk Factors’’ and ‘‘Cautionary Statement Concerning ForwardLooking Statements’’ for a discussion of the uncertainties, risks and assumptions associated with these
statements.
Separation from Vornado
On October 31, 2016, Vornado announced that Vornado and VRLP had entered into the MTA
with JBG Properties, JBG Operating Partners, the JBG Contributing Funds, JBG SMITH and JBG
SMITH LP, pursuant to which Vornado intends to separate the Vornado Included Assets from Vornado
and combine them with the management business and certain select assets of the JBG Parties in the
Washington, DC metropolitan area.
The separation will be effectuated by means of a pro rata distribution by Vornado to its
common shareholders of all outstanding JBG SMITH common shares. JBG SMITH was formed for the
purpose of receiving, via contribution from Vornado, all of the assets and liabilities of Vornado’s
Washington, DC segment, and combining Vornado’s Washington, DC segment (which operates as
Vornado / Charles E. Smith) and the management business and certain Washington, DC assets of JBG.
Prior to such distribution by Vornado, as part of the transactions to effect the separation of JBG
SMITH and the Vornado Included Assets from Vornado, VRLP will distribute all outstanding JBG
SMITH LP common limited partnership units on a pro rata basis to holders of VRLP’s common
limited partnership units, consisting of Vornado and the other common limited partners of VRLP.
Following such distribution by VRLP and prior to such distribution by Vornado, Vornado will
contribute to JBG SMITH all of the common limited partnership units of JBG SMITH LP it receives
in the distribution by VRLP in exchange for JBG SMITH common shares. On
, the board of
trustees of Vornado declared the distribution of all JBG SMITH common shares on the basis of one
JBG SMITH common share for every two Vornado common shares held of record as of the close of
business on the record date. On the same date, VRLP declared the distribution of all of the
outstanding JBG SMITH LP common limited partnership units to Vornado and the other holders of
common limited partnership units of VRLP on the basis of one JBG SMITH LP common limited
partnership unit for every two common limited partnership units of VRLP held of record as of the
close of business on the record date. Following the distribution by VRLP, the contribution by Vornado
to JBG SMITH of JBG SMITH LP common limited partnership units and the distribution by Vornado,
Vornado and JBG SMITH will be two independent, publicly held companies.
Overview
JBG SMITH is a newly formed Maryland REIT created for the purpose of receiving, via
contribution from Vornado, all of the assets and liabilities of Vornado’s Washington, DC segment. JBG
114
SMITH is currently a wholly owned subsidiary of Vornado. JBG SMITH intends to elect and qualify to
be taxed as a REIT for U.S. Federal income tax purposes.
To date, JBG SMITH has not conducted any business as a separate company and has no
material assets and liabilities. The operations of the assets to be transferred to JBG SMITH are
presented as if the transfer had been consummated prior to all historical periods presented in the
accompanying combined financial statements at the carrying amounts of such assets and liabilities
reflected in Vornado’s books and records.
JBG SMITH will enter into agreements with Vornado under which Vornado will provide
various services to it, including information technology, financial reporting and SEC compliance, and
possibly other matters. The charges for these services will be estimated based on an hourly or per
transaction fee arrangement including reimbursement for out-of-pocket expenses. We believe that the
terms are comparable to those that would have been negotiated on an arm’s-length basis.
The accompanying combined financial statements have been prepared on a carve-out basis in
accordance with GAAP. GAAP requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and revenues and expenses during the reporting periods. Actual results
could differ from these estimates. The historical financial results for the carved out assets reflect
charges for certain corporate costs which we believe are reasonable. These charges were based on
either actual costs incurred or a proportion of costs estimated to be applicable to the Vornado Included
Assets based on an analysis of key metrics, including total revenues. Such costs do not necessarily
reflect what the actual costs would have been if the Vornado Included Assets had been operating as a
separate standalone public company. These charges are discussed further in Note 5—Related Party
Transactions of the accompanying combined financial statements.
Subsequent to the transfer of assets to JBG SMITH and the distribution of JBG SMITH’s
common shares to Vornado’s shareholders, JBG SMITH expects to operate in a manner intended to
enable it to qualify as a REIT under Sections 856-860 of the Code. Under those sections, a REIT
which distributes at least 90% of its REIT taxable income as a dividend to its shareholders each year
and which meets certain other conditions will not be taxed on that portion of its taxable income which
is distributed to its shareholders. Since Vornado operates as a REIT and distributes 100% of its taxable
income to its shareholders, no provision for Federal income taxes has been made in the accompanying
combined financial statements. The Vornado Included Assets are also subject to certain other taxes,
including state and local taxes which are included in ‘‘income tax provision’’ in the combined
statements of income.
Presentation of earnings per share information is not applicable in these carved out combined
financial statements, since these assets and liabilities are wholly owned by Vornado.
The Vornado Included Assets aggregate assets into two reportable segments—office and
multifamily—because all of the assets in each segment have similar economic characteristics and we will
provide similar products and services to similar types of office and multifamily tenants.
We compete with a large number of property owners and developers. Our success depends
upon, among other factors, trends affecting national and local economies, the financial condition and
operating results of current and prospective tenants, the availability and cost of capital, interest rates,
construction and renovation costs, taxes, governmental regulations and legislation, population trends,
zoning laws, and our ability to lease, sublease or sell our assets at profitable levels. Our success is also
subject to our ability to refinance existing debt on acceptable terms as it comes due. See ‘‘Risk Factors’’
for a description of these and other risks that may impact the success of our business.
115
Critical Accounting Policies and Estimates
Real Estate—Real estate is carried at cost, net of accumulated depreciation and amortization.
Maintenance and repairs are expensed as incurred. Depreciation requires an estimate by management
of the useful life of each property and improvement as well as an allocation of the costs associated with
a property to its various components. As real estate is undergoing redevelopment activities, all property
operating expenses directly associated with and attributable to the redevelopment, including interest
expense, are capitalized to the extent that we believe such costs are recoverable through the value of
the property. The capitalization period begins when redevelopment activities are underway and ends
when the project is substantially complete. General and administrative costs are expensed as incurred.
Depreciation is recognized on a straight-line basis over estimated useful lives, which range from three
to 40 years. Tenant allowances are amortized on a straight-line basis over the lives of the related leases,
which approximate the useful lives of the tenant improvements.
Our assets and related intangible assets are individually reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the assets may not be
recoverable. An impairment exists when the carrying amount of an asset exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual disposition of the asset.
Estimates of future cash flows are based on our current plans, intended holding periods and available
market information at the time the analyses are prepared. An impairment loss is recognized only if the
carrying amount of the asset is not recoverable and is measured based on the excess of the property’s
carrying amount over its estimated fair value. If our estimates of future cash flows, anticipated holding
periods, or fair values change, based on market conditions or otherwise, our evaluation of impairment
charges may be different and such differences could be material to our combined financial statements.
Estimates of future cash flows are subjective and are based, in part, on assumptions regarding future
occupancy, rental rates and capital requirements that could differ materially from actual results. Plans
to hold assets over longer periods decrease the likelihood of recording impairment losses.
Cash and Cash Equivalents—Cash and cash equivalents consist of highly liquid investments with
original maturities of three months or less and are carried at cost, which approximates fair value, due
to their short-term maturities.
Allowance for Doubtful Accounts—We periodically evaluate the collectability of amounts due
from tenants, including the receivable arising from the straight-lining of rents, and maintain an
allowance for doubtful accounts for the estimated losses resulting from the inability of tenants to make
required payments under the lease agreements. We exercise judgment in establishing these allowances
and consider payment history and current credit status in developing these estimates.
Deferred Costs—Deferred costs include deferred financing and leasing costs. Deferred financing
costs are amortized over the terms of the related debt agreements as a component of interest expense.
Deferred leasing costs are amortized on a straight-line basis over the lives of the related leases.
Revenue Recognition—Property rentals are recognized over the non-cancelable term of the
related leases on a straight-line basis, which includes the effects of rent steps and free rent under the
leases. We commence rental revenue recognition when the tenant takes possession of the leased space
and the leased space is substantially ready for its intended use. In addition, in circumstances where we
provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize
the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease.
Tenant expense reimbursements provide for the recovery of all or a portion of the operating expenses
and real estate taxes of the respective assets. Tenant expense reimbursements are accrued in the same
periods as the related expenses are incurred.
Income Taxes—We operate in a manner intended to enable us to continue to qualify as a REIT
under Sections 856-860 of the Code. Under those sections, a REIT which distributes at least 90% of its
116
REIT taxable income as a dividend to its shareholders each year and which meets certain other
conditions will not be taxed on that portion of its taxable income which is distributed to its
shareholders. We intend to distribute to our shareholders 100% of our taxable income and therefore,
no provision for Federal income taxes is required.
Results of Operations—Three Months Ended March 31, 2017 Compared to the Three Months Ended
March 31, 2016
Property Rentals
Property rentals were $99,024,000 in the three months ended March 31, 2017, compared to
$97,371,000 in the three months ended March 31, 2016, an increase of $1,653,000. This increase is
primarily due to higher average rents.
Tenant Expense Reimbursements
Tenant expense reimbursements were $8,637,000 in the three months ended March 31, 2017,
compared to $9,481,000 in the three months ended March 31, 2016, a decrease of $844,000. This
decrease is primarily due to lower operating expenses and real estate taxes for the office portfolio.
Development, Management and Other Service Revenues
Development, management and other service revenues were $2,781,000 in the three months
ended March 31, 2017, compared to $4,229,000 in the three months ended March 31, 2016, a decrease
of $1,448,000. This decrease was primarily due to lower third party management fees and leasing
commissions.
Other Income
Other income was $5,830,000 in the three months ended March 31, 2017, compared to
$5,703,000 in the three months ended March 31, 2016, an increase of $127,000.
Depreciation and Amortization
Depreciation and amortization was $33,782,000 in the three months ended March 31, 2017,
compared to $34,289,000 in the three months ended March 31, 2016, a decrease of $507,000. This
decrease is primarily due to accelerated depreciation on 1150 17th Street and 1726 M Street which were
taken out of service during the second quarter of 2016 to prepare for development of a new Class A
office building, partially offset by placing the Bartlett into service during 2016.
Property Operating Expenses
Property operating expenses were $27,740,000 in the three months ended March 31, 2017,
compared to $28,628,000 in the three months ended March 31, 2016, a decrease of $888,000. This
decrease was primarily due to a reduction in utility and repair and maintenance expenses, partially
offset by a reduction of bad debt expense.
Ground Rent Expense
Ground rent expense was $441,000 in the three months ended March 31, 2017, compared to
$458,000 in the three months ended March 31, 2016, a decrease of $17,000. This decrease is primarily
due to ground rent for Courthouse Plaza I and II which is based on the amount of net cash flow of
these assets.
117
General and Administrative Expenses
General and administrative expenses were $13,690,000 in the three months ended March 31,
2017, compared to $14,021,000 in the three months ended March 31, 2016, a decrease of $331,000. This
decrease is primarily due to lower payroll and benefits partially offset by lower capitalized payroll.
Transaction Costs
Transaction costs were $5,841,000 in the three months ended March 31, 2017 and consist
primarily of professional fees in connection with the spin-off of Vornado’s Washington, DC segment
and combining it with the management business and certain Washington, DC assets of the JBG
Companies.
Real Estate Taxes
Real estate taxes were $15,172,000 in the three months ended March 31, 2017, compared to
$15,112,000 in the three months ended March 31, 2016, an increase of $60,000. This increase is
primarily due to an increase in the tax assessment and lower capitalized real estate taxes for the
Bartlett residential building, offset by lower tax assessments on certain of our office assets.
Income / (Loss) from Partially Owned Entities
Income from partially owned entities was $88,000 in the three months ended March 31, 2017,
compared to a loss of $1,179,000 in the three months ended March 31, 2016, an increase in income of
$1,267,000. This increase is primarily due to a reduction of interest expense resulting from the
refinancing of the Warner Building Mortgage Loan in May 2016 at a lower interest rate and a lower
principal amount.
Interest and Other Investment Income, net
Interest and other investment income, net was $896,000 in the three months ended March 31,
2017, compared to $800,000 in the three months ended March 31, 2016, an increase of $96,000. This
increase is primarily due to an increase in interest income on the Universal Building note receivable.
Interest and Debt Expense
Interest and debt expense was $13,918,000 in the three months ended March 31, 2017,
compared to $12,086,000 in the three months ended March 31, 2016, an increase of $1,832,000. This
increase is primarily due to higher interest on the H Street note payable as a result of a higher
outstanding balance partially offset by lower capitalized interest in 2017.
Income Tax Provision
Income tax provision was $354,000 in the three months ended March 31, 2017, compared to
$264,000 in the three months ended March 31, 2016, an increase of $90,000. This increase is primarily
due to an increase of the tax provision for Crystal Marriott Hotel.
Results of Operations—Year Ended December 31, 2016 Compared to the Year Ended December 31,
2015
Property Rentals
Property rentals were $401,577,000 in the year ended December 31, 2016, compared to
$389,792,000 in the year ended December 31, 2015, an increase of $11,785,000. This increase is
primarily due to (i) the Bartlett multifamily project being phased into service during the second quarter
118
of 2016, (ii) 2221 South Clark Street being phased into service beginning in the third quarter of 2015
and (iii) higher average office occupancy.
Tenant Expense Reimbursements
Tenant expense reimbursements were $38,291,000 in the year ended December 31, 2016,
compared to $41,047,000 in the year ended December 31, 2015, a decrease of $2,756,000. This decrease
is primarily due to a decrease in real estate taxes at certain of our office assets and a decrease in
tenant services.
Development, Management and Other Service Revenues
Development, management and other service revenues were $17,078,000 in the year ended
December 31, 2016, compared to $13,265,000 in the year ended December 31, 2015, an increase of
$3,813,000. This increase was primarily due to an increase in leasing fees as a result of higher leasing
activity in the current year.
Other Income
Other income was $21,573,000 in the year ended December 31, 2016, compared to $26,503,000
in the year ended December 31, 2015, a decrease of $4,930,000. This decrease is primarily due to a
recovery of prior period billings from a former tenant in 2015 and a decrease in lease termination
payments from tenants.
Depreciation and Amortization
Depreciation and amortization was $133,343,000 in the year ended December 31, 2016,
compared to $144,984,000 in the year ended December 31, 2015, a decrease of $11,641,000. This
decrease is primarily due to 1150 17th Street and 1726 M Street, which were taken out of service
during the second quarter of 2016 to prepare for development of a new Class A office building.
Property Operating Expenses
Property operating expenses were $115,853,000 in the year ended December 31, 2016,
compared to $116,811,000 in the year ended December 31, 2015, a decrease of $958,000. This decrease
was primarily due to a reduction in utility expenses.
Real Estate Taxes
Real estate taxes were $57,784,000 in the year ended December 31, 2016, compared to
$58,866,000 in the year ended December 31, 2015, a decrease of $1,082,000. This decrease is primarily
due to lower tax assessments on certain of our office assets.
General and Administrative Expenses
General and administrative expenses were $50,416,000 in the year ended December 31, 2016,
compared to $46,037,000 in the year ended December 31, 2015, an increase of $4,379,000. This increase
is primarily due to higher payroll and benefits and lower capitalized payroll and benefits in 2016.
Transaction Costs
Transaction costs were $6,476,000 in the year ended December 31, 2016 and consist primarily
of professional fees in connection with the spin-off of Vornado’s Washington, DC segment and
combining it with the management business and certain Washington, DC assets of the JBG Companies.
119
Ground Rent Expense
Ground rent expense was $1,854,000 in the year ended December 31, 2016, compared to
$1,312,000 in the year ended December 31, 2015, an increase of $542,000. This increase is primarily
due to ground rent for Courthouse Plaza I and II which is based on the amount of net cash flow of
these assets.
Loss from Partially Owned Entities
Loss from partially owned entities was $1,242,000 in the year ended December 31, 2016,
compared to $4,434,000 in the year ended December 31, 2015, a decrease of $3,192,000. This decrease
is primarily due to our share of interest savings from the refinancing of the Warner Building in May
2016 at a lower interest rate and lower outstanding principal balance.
Interest and Other Investment Income, net
Interest and other investment income, net was $3,287,000 in the year ended December 31,
2016, compared to $2,708,000 in the year ended December 31, 2015, an increase of $579,000. This
increase is primarily due to interest accrued on a higher average outstanding receivable balance from
Vornado.
Interest and Debt Expense
Interest and debt expense was $51,781,000 in the year ended December 31, 2016, compared to
$50,823,000 in the year ended December 31, 2015, an increase of $958,000. This increase is primarily
due to (i) $4,346,000 of interest on higher average outstanding payable balances to Vornado, partially
offset by (ii) lower interest rates resulting from the refinancing of RiverHouse apartments in April 2015
and the Bowen Building in June 2016. The new RiverHouse apartments’ $307,710,000 loan bears
interest at LIBOR plus 1.28% (1.90% as of December 31, 2016), and replaced the debt scheduled to
mature of $259,500,000 which bore interest at 4.51%. The Bowen loan, which bore interest at 6.14%,
was repaid using proceeds of a $115,630,000 draw on Vornado’s revolving credit facility which bears
interest at LIBOR plus 1.05% (1.68% as of December 31, 2016).
Income Tax Provision
Income tax provision was $1,083,000 in the year ended December 31, 2016, compared to
$420,000 in the year ended December 31, 2015, an increase of $663,000. This increase is primarily due
to a $645,800 benefit in 2015 from the write-off of deferred tax liabilities.
Results of Operations—Year Ended December 31, 2015 Compared to the Year Ended December 31,
2014
Property Rentals
Property rentals were $389,792,000 in the year ended December 31, 2015, compared to
$390,576,000 in the prior year, a decrease of $784,000. This decrease is primarily due to lower average
occupancy of our multifamily portfolio during 2015.
Tenant Expense Reimbursements
Tenant expense reimbursements were $41,047,000 in the year ended December 31, 2015,
compared to $41,243,000 in the prior year, a decrease of $196,000. This decrease is primarily due to a
decrease in reimbursable real estate taxes and operating expenses due to tenant turnover and lease
expirations, partially offset by an increase in tenant services.
120
Development, Management and Other Service Revenues
Development, management and other service revenues were $13,265,000 in the year ended
December 31, 2015, compared to $14,113,000 in the prior year, a decrease of $848,000. This decrease is
primarily due to lower management and construction management fees during 2015.
Other Income
Other income was $26,503,000 in the year ended December 31, 2015, compared to $26,991,000
in the prior year, a decrease of $488,000. This decrease is primarily due to lower lease termination
income offset by a recovery of prior period billings from a former tenant.
Depreciation and Amortization
Depreciation and amortization was $144,984,000 in the year ended December 31, 2015,
compared to $112,046,000 in the prior year, an increase of $32,938,000. This increase is primarily due
to accelerating depreciation on 1150 17th Street and 1726 M Street which were taken out of service to
prepare for development of a new Class A office building.
Property Operating Expenses
Property operating expenses were $116,811,000 in the year ended December 31, 2015,
compared to $114,921,000 in the prior year, an increase of $1,890,000. This increase is primarily due to
higher payroll, cleaning, insurance premiums and tenant services.
Real Estate Taxes
Real estate taxes were $58,866,000 in the year ended December 31, 2015, compared to
$56,129,000 in the prior year, an increase of $2,737,000. This increase is primarily due to higher
assessments and tax rates.
General and Administrative Expenses
General and administrative expenses were $46,037,000 in the year ended December 31, 2015,
compared to $47,669,000 in the prior year, a decrease of $1,632,000. This decrease is primarily due to
higher capitalized payroll and benefits in 2015.
Ground Rent Expense
Ground rent expense was $1,312,000 in the year ended December 31, 2015, compared to
$3,539,000 in the prior year, a decrease of $2,227,000. This decrease is primarily due to lower ground
rent for Courthouse Plaza I and II which is based on the amount of net cash flow of these assets.
Loss from Partially Owned Entities
Loss from partially owned entities was $4,434,000 in the year ended December 31, 2015,
compared to $1,279,000 in the prior year, an increase of $3,155,000. This increase is primarily due to
our $1,800,000 share of Waterfront Station’s gain on sale of a land parcel in the prior year and our
share of a recovery in the prior year from a former tenant at the Warner Building as a result of its
bankruptcy settlement.
121
Interest and Other Investment Income, net
Interest and other investment income, net was $2,708,000 in the year ended December 31,
2015, compared to $1,338,000 in the prior year, an increase of $1,370,000. This increase is primarily due
to interest accrued on the note receivable from Vornado which we made in the third quarter of 2014,
bearing interest at one year LIBOR plus 2.9% (3.72% as of December 31, 2015), partially offset by a
$405,000 non-cash impairment loss on a marketable security.
Interest and Debt Expense
Interest and debt expense was $50,823,000 in the year ended December 31, 2015, compared to
$57,137,000 in the prior year, a decrease of $6,314,000. This decrease is primarily due to (i) lower
interest rates from the refinancing of RiverHouse apartments and Universal Buildings, (ii) repayment
of Crystal Square 2 and 3 mortgages, and (iii) an increase in capitalized interest related to construction
of The Bartlett multifamily complex.
Income Tax Provision
Income tax provision was $420,000 in the year ended December 31, 2015, compared to
$242,000 in the prior year, an increase of $178,000. This increase is primarily due to higher taxes on
our hotel asset, the Crystal City Marriott.
Non-GAAP Financial Measures
Earnings Before Interest, Taxes, Depreciation and Amortization (‘‘EBITDA’’)
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by
segment for the three months ended March 31, 2017 and 2016.
For the Three Months Ended March 31, 2017
Total
Office
Multifamily
Other
(Amounts in thousands)
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . .
Income (loss) from partially owned entities
Interest and other investment income, net .
Interest and debt (expense) benefit . . . . . .
7,382
—
—
(3,663)
(15,700)
(121)
30
52
Income (loss) before income taxes . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,672
(354)
18,692
(31)
3,719
—
(15,739)
(323)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
6,318
15,538
35,591
367
18,661
11,927
29,024
44
3,719
3,663
5,847
—
(16,062)
(52)
720
323
EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 57,814
$ 59,656
$13,229
$(15,071)
122
.
.
.
.
.
.
.
.
.
.
.
.
See notes on page 124.
.
.
.
.
.
.
.
.
9,084
24,784
27,924
209
866
(10,307)
.
.
.
.
.
.
.
.
20,775
13,393
19,606
88
896
(13,918)
.
.
.
.
.
.
.
.
86,413
58,489
.
.
.
.
Net income (loss) . . . . . . . . . . . . . . .
Interest and debt expense (benefit)(2) .
Depreciation and amortization(2) . . . .
Income tax expense(2) . . . . . . . . . . . .
.
.
.
.
$116,272
96,666
.
.
.
.
For the Three Months Ended March 31, 2016
Total
Office
Multifamily
Other
(Amounts in thousands)
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . .
Loss from partially owned entities . . .
Interest and other investment income,
Interest and debt (expense) benefit . .
...
...
net
...
6,560
—
—
(1,186)
(8,816)
(17)
19
113
Income (loss) before income taxes . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,811
(264)
15,138
(17)
5,374
—
(8,701)
(247)
Net income (loss) . . . . . . . . . . . . . . .
Interest and debt expense (benefit)(2) .
Depreciation and amortization(2) . . . .
Income tax expense(2) . . . . . . . . . . . .
.
.
.
.
11,547
14,758
35,953
266
15,121
13,685
31,878
19
5,374
1,186
3,372
—
(8,948)
(113)
703
247
EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 62,524
$ 60,703
$ 9,932
$ (8,111)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
10,594
19,410
26,532
(1,162)
781
(11,013)
.
.
.
.
.
.
.
.
15,506
8,946
24,276
(1,179)
800
(12,086)
.
.
.
.
.
.
.
.
90,684
64,152
.
.
.
.
.
.
.
.
.
.
.
.
$116,784
92,508
.
.
.
.
See notes on the following page.
Below is a summary of net income and a reconciliation of net income to EBITDA(1) by
segment for the years ended December 31, 2016, 2015 and 2014.
For the Year Ended December 31, 2016
Total
Office
Multifamily
Other
(Amounts in thousands)
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . .
Loss from partially owned entities . . . . . . . . . . .
Interest and other investment income (loss), net
Interest and debt (expense) benefit . . . . . . . . . .
25,207
—
1
(11,098)
(32,917)
(296)
(120)
122
Income (loss) before income taxes . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . .
63,057
(1,083)
82,158
(93)
14,110
—
(33,211)
(990)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
61,974
59,474
140,127
1,105
82,065
48,498
117,815
116
14,110
11,098
19,223
—
(34,201)
(122)
3,089
989
EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$262,680
$248,494
$44,431
$(30,245)(3)
See notes on the following page.
123
.
.
.
.
.
.
.
.
$ 44,075
76,992
120,503
(946)
3,406
(40,805)
.
.
.
.
.
.
.
.
$68,798
43,591
112,793
(1,242)
3,287
(51,781)
.
.
.
.
.
.
.
.
$365,646
245,143
.
.
.
.
Net income (loss) . . . . . . . . . . . . . .
Interest and debt expense (benefit)(2)
Depreciation and amortization(2) . . . .
Income tax expense(2) . . . . . . . . . . . .
.
.
.
.
$478,519
365,726
.
.
.
.
For the Year Ended December 31, 2015
Total
Office
Multifamily
Other
(Amounts in thousands)
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . .
Loss from partially owned entities . . . . . . . . . . .
Interest and other investment income (loss), net
Interest and debt (expense) benefit . . . . . . . . . .
23,972
—
—
(9,876)
(27,311)
(151)
(343)
788
Income (loss) before income taxes . . . . . . . . . . . . . . . . .
Income tax (provision) benefit . . . . . . . . . . . . . . . . . . . .
50,048
(420)
62,969
526
14,096
—
(27,017)
(946)
63,495
52,386
135,913
(578)
14,096
9,876
13,209
—
(27,963)
(788)
2,832
946
$37,181
$(24,973)(3)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$ 40,000
67,311
105,936
(4,283)
3,051
(41,735)
.
.
.
.
.
.
.
.
$57,810
33,838
102,597
(4,434)
2,708
(50,823)
.
.
.
.
.
.
.
.
$372,797
266,861
.
.
.
.
Net income (loss) . . . . . . . . . . . . . .
Interest and debt expense (benefit)(2)
Depreciation and amortization(2) . . . .
Income tax expense (benefit)(2) . . . . .
.
.
.
.
$470,607
368,010
.
.
.
.
.
.
.
.
49,628
61,474
151,954
368
EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$263,424
$251,216
For the Year Ended December 31, 2014
Total
Office
Multifamily
Other
(Amounts in thousands)
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . .
(Loss) income from partially owned entities .
Interest and other investment income, net . .
Interest and debt (expense) benefit . . . . . . .
27,158
—
1
(20,809)
(28,637)
1,800
28
3,901
Income (loss) before income taxes . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . .
81,541
(242)
98,099
(14)
6,350
—
(22,908)
(228)
(23,136)
(3,901)
2,867
228
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$ 39,837
68,474
140,098
(3,079)
1,309
(40,229)
.
.
.
.
.
.
.
.
$ 59,406
32,248
138,619
(1,279)
1,338
(57,137)
.
.
.
.
.
.
.
.
$373,680
233,582
.
.
.
.
Net income (loss) . . . . . . . . . . . . . .
Interest and debt expense (benefit)(2)
Depreciation and amortization(2) . . . .
Income tax expense(2) . . . . . . . . . . . .
.
.
.
.
$472,923
334,304
.
.
.
.
.
.
.
.
81,299
67,735
118,109
288
98,085
50,828
102,529
60
6,350
20,808
12,713
—
EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$267,431
$251,502
$ 39,871
$(23,942)(3)
(1)
We consider EBITDA a non-GAAP financial measure for making decisions and assessing the unlevered performance
of our segments as it relates to the total return on assets as opposed to the levered return on equity. As assets are
bought and sold based on a multiple of EBITDA, we utilize this measure to make investment decisions as well as to
compare the performance of our assets to that of our peers. EBITDA should not be considered a substitute for net
income. EBITDA may not be comparable to similarly titled measures employed by other companies.
(2)
Interest and debt expense (benefit), depreciation and amortization and income tax expense (benefit) in the
reconciliation of net income (loss) to EBITDA includes our share of these items from partially owned entities.
124
(3)
The elements of ‘‘Other’’ EBITDA are summarized below.
For the Three Months
Ended March 31,
2017
2016
(Amounts in thousands)
General and administrative
Transaction costs . . . . . . .
Management company . . .
Other investments . . . . . .
expenses
.......
.......
.......
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
For the Year Ended December 31,
2016
2015
2014
.
.
.
.
$(13,682)
(5,841)
3,257
1,195
$(14,016) $(50,218) $(45,936) $(47,530)
—
(6,476)
—
—
5,328
19,940
16,314
16,778
577
6,509
4,649
6,810
Total Other EBITDA . . . . . . . . . . . . . . . . .
$(15,071)
$ (8,111) $(30,245) $(24,973) $(23,942)
Funds From Operations (‘‘FFO’’)
We calculate FFO in accordance with the definition used by NAREIT. NAREIT defines FFO
as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets,
real estate impairment losses, depreciation and amortization expense from real estate assets and other
specified non-cash items, including the pro rata share of such adjustments of unconsolidated
subsidiaries. Adjusted FFO means FFO as adjusted to exclude non-comparable income and expenses in
each period. We believe FFO and adjusted FFO are meaningful non-GAAP financial measures useful
in comparing our levered operating performance both internally from period to period and among our
peers because these non-GAAP measures exclude net gains on sales of depreciable real estate, real
estate impairment losses, and depreciation and amortization expense which implicitly assumes that the
value of real estate diminishes predictably over time rather than fluctuating based on market
conditions. FFO and adjusted FFO do not represent cash generated from operating activities and are
not necessarily indicative of cash available to fund cash requirements and should not be considered as
an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO and
adjusted FFO may not be comparable to similarly titled measures employed by others.
The following table reconciles net income attributable to the Vornado Included Assets to FFO
and adjusted FFO for the three months ended March 31, 2017 and 2016 and the years ended
December 31, 2016, 2015 and 2014.
(Amount in thousands)
(Unaudited)
For the Three Months
Ended March 31,
2017
2016
Net income attributable to the Vornado Included Assets . . . . . . . . . . . . . . . . . . .
Depreciation and amortization of real property . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,318
35,142
$ 11,547
35,622
FFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,460
47,169
Noncomparable items:
Professional fees associated with the spin-off of the Vornado Included Assets . .
5,841
—
Subtotal adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,841
—
Adjusted FFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$47,301
$ 47,169
125
(Unaudited)
For the Year Ended December 31,
2016
2015
2014
(Amounts in thousands)
Net income attributable to the Vornado Included Assets . . . . .
Depreciation and amortization of real property . . . . . . . . . . . .
FFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncomparable items:
Professional fees associated with the spin-off of the Vornado
Included Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash impairment loss on an investment . . . . . . . . . . . .
Reversal of deferred income tax liabilities . . . . . . . . . . . . . .
Prepayment penalty on refinancing of RiverHouse . . . . . . . .
Our share of a net gain on sale of land . . . . . . . . . . . . . . . .
Subtotal adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted FFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....
.....
.....
$ 61,974
138,591
200,565
$ 49,628
150,708
200,336
.
.
.
.
.
.
.
6,476
213
—
—
—
6,689
$207,254
—
—
405
—
(745)
—
640
—
—
(1,800)
300
(1,800)
$200,636 $196,517
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$ 81,299
117,018
198,317
Liquidity and Capital Resources
Property rental income is our primary source of cash flow and is dependent on a number of
factors including the occupancy level and rental rates, as well as the tenants’ ability to pay rent. Our
assets provide us with a relatively consistent stream of cash flow that enables us to pay operating
expenses, debt service and recurring capital expenditures. Other sources of liquidity to fund cash
requirements include proceeds from financings and asset sales. We anticipate that cash flows from
continuing operations over the next 12 months, together with existing cash balances, will be adequate to
fund our business operations, debt amortization and recurring capital expenditures.
Financing Activities and Contractual Obligations
Below is a summary of our outstanding debt and maturities as of March 31, 2017 and
December 31, 2016.
Maturity
(Amounts in thousands)
First mortgages secured by:
RiverHouse Apartments . . . . . . . . . . . . . . . . . . .
Universal Buildings . . . . . . . . . . . . . . . . . . . . . .
2101 L Street . . . . . . . . . . . . . . . . . . . . . . . . . .
2121 Crystal Drive . . . . . . . . . . . . . . . . . . . . . . .
West End 25 . . . . . . . . . . . . . . . . . . . . . . . . . . .
1215 Clark Street, 200 12th Street &
251 18th Street . . . . . . . . . . . . . . . . . . . . . . . .
2011 Crystal Drive . . . . . . . . . . . . . . . . . . . . . . .
220 20th Street . . . . . . . . . . . . . . . . . . . . . . . . .
1730 M Street and 1150 17th Street . . . . . . . . . .
2200/2300 Clarendon Boulevard (Courthouse Plaza)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing costs, net and other . . . . . . . .
Total, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Rate at
March 31,
2017
Balance at
March 31,
December 31,
2017
2016
.
.
.
.
.
04/25
08/21
08/24
03/23
06/21
2.07%
2.69%
3.97%
5.51%
4.88%
$ 307,710
185,000
142,676
141,015
100,455
.
.
.
.
.
.
.
.
01/25
08/17
02/18
08/17(1)
05/20
7.94%
7.30%
4.61%
2.03%
2.45%
90,118
91,015
74,674
75,004
68,041
68,426
43,581
43,581
11,000
11,000
1,164,270
1,167,618
(2,286)
(2,604)
$1,161,984 $1,165,014
3.11%
$ 289,590
Payable to Vornado(2) . . . . . . . . . . . . . . . . . . . . . .
$ 307,710
185,000
143,415
141,625
100,842
$ 283,232
(1)
The maturity date was extended for three months in May 2017.
(2)
The mortgage loan for the Bowen Building, which was scheduled to mature in June 2016, was repaid with proceeds of
a $115,630 draw on Vornado’s revolving credit facility and is secured by an interest on this property, and, accordingly,
has been reflected as a component of ‘‘Payable to Vornado’’ on the combined balance sheets as of December 31, 2016
and March 31, 2017. The mortgage will be assigned to JBG SMITH and the note will be repaid with new financing
proceeds from JBG SMITH.
126
Below is a summary of our contractual obligations and commitments as of December 31, 2016.
Total
Less than
One Year
One to
Three Years
Three to
Five Years
Thereafter
Contractual cash obligations (principal and
interest):
Notes and mortgages payable . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . .
Purchase obligations, primarily
construction commitments . . . . . . . . .
$1,415,478
576,927
$186,654
1,697
$175,604
3,529
$369,387
3,725
$ 683,833
567,976
41,715
41,715
—
—
—
Total contractual cash obligations . . . . .
$2,034,120
$230,066
$179,133
$373,112
$1,251,809
Payable to Vornado . . . . . . . . . . . . . . .
$ 283,232
$283,232
$
—
$
—
$
—
$
$
$
—
$
—
$
—
(Amounts in thousands)
Commitments:
Capital commitments to partially owned
entities . . . . . . . . . . . . . . . . . . . . . . .
6,658
6,658
Effective upon the completion of the transaction, we expect to execute a $1.4 billion senior
unsecured credit facility consisting of a four-year, with two six-month extension options, $1.0 billion
revolving credit facility, a five and a half-year delayed draw $200 million term loan (‘‘Tranche A-1 Term
Loan’’) and a seven-year delayed draw $200 million term loan (‘‘Tranche A-2 Term Loan’’). The
interest rate for the senior unsecured credit facility will vary based on a ratio of JBG SMITH’s total
outstanding indebtedness to a valuation of certain real property businesses and assets and will range
(a) in the case of the revolving credit facility, from LIBOR plus 1.10% to LIBOR plus 1.50%, (b) in
the case of the Tranche A-1 Term Loan, from LIBOR plus 1.20% to LIBOR plus 1.70% and (c) in the
case of the Tranche A-2 Term Loan, from LIBOR plus 1.55% to LIBOR plus 2.35%.
Commitments and Contingencies
Insurance
Vornado maintains general liability insurance with limits of $300,000,000 per occurrence and
per property, and all-risk property and rental value insurance coverage with limits of $2.0 billion per
occurrence, with sub-limits for certain perils such as floods and earthquakes on each of Vornado’s
properties. Vornado also maintains coverage for terrorist acts with limits of $4.0 billion per occurrence
and in the aggregate, and $2.0 billion per occurrence and in the aggregate for nuclear, biological,
chemical and radiological terrorism events, as defined by the Terrorism Risk Insurance Program
Reauthorization Act, which expires in December 2020. Insurance premiums are charged directly to each
of the properties. JBG SMITH intends to obtain appropriate insurance coverage on its own and
coverages may differ from those noted above. Also, the resulting insurance premiums may differ
materially from amounts included in the accompanying combined financial statements.
JBG SMITH will continue to monitor the state of the insurance market and the scope and
costs of coverage for acts of terrorism. We cannot anticipate what coverage will be available on
commercially reasonable terms in the future. We are responsible for deductibles and losses in excess of
the insurance coverage, which could be material.
Vornado’s mortgage loans are generally non-recourse and contain customary covenants
requiring adequate insurance coverage. Although we believe that we currently have adequate insurance
coverage, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the
future. If lenders insist on greater coverage than we are able to obtain, it could adversely affect our
ability to finance or refinance our properties.
127
Other
There are various legal actions against us in the ordinary course of business. In our opinion,
the outcome of such matters will not have a material adverse effect on our financial condition, results
of operations or cash flows.
As of March 31, 2017, we expect to fund additional capital to certain of our partially owned
entities aggregating approximately $6,522,000.
Cash Flows
Cash Flows for the Three Months Ended March 31, 2017
Cash and cash equivalents were $50,712,000 at March 31, 2017, compared to $29,000,000 at
December 31, 2016, an increase of $21,712,000. This increase resulted from $39,601,000 of net cash
provided by operating activities and $12,205,000 of net cash provided by financing activities, partially
offset by $30,094,000 of net cash used in investing activities. Our combined outstanding debt was
$1,161,984,000 at March 31, 2017, a $3,030,000 decrease from the balance at December 31, 2016.
Net cash provided by operating activities of $39,601,000 was comprised of (i) net income of
$6,318,000, (ii) $32,523,000 of non-cash adjustments, which include depreciation and amortization,
income from partially owned entities, and the effect of straight-lining of rental income, (iii) the net
change in operating assets and liabilities of $717,000 and (iv) distributions of income from partially
owned entities of $43,000.
Net cash used in investing activities of $30,094,000 was comprised of (i) $28,479,000 of
development costs, construction in progress and real estate additions, (ii) $1,465,000 of changes in
restricted cash and (iii) $150,000 of investments in partially owned entities.
Net cash provided by financing activities of $12,205,000 was comprised of (i) $11,594,000 of
contributions / (distributions), net, (ii) $4,000,000 of proceeds from borrowings from Vornado, partially
offset by (iii) $3,347,000 for the repayments of borrowings and (iv) $42,000 of debt issuance costs.
Cash Flows for the Three Months Ended March 31, 2016
Cash and cash equivalents were $42,449,000 at March 31, 2016, compared to $74,966,000 at
December 31, 2015, a decrease of $32,517,000. This decrease resulted from $58,182,000 of net cash
used in investing activities and $32,196,000 of net cash used in financing activities, partially offset by
$57,861,000 of net cash provided by operating activities. Our combined outstanding debt was
$1,301,259,000 at March 31, 2016, a $1,697,000 decrease from the balance at December 31, 2015.
Net cash provided by operating activities of $57,861,000 was comprised of (i) net income of
$11,547,000, (ii) $35,697,000 of non-cash adjustments, which include depreciation and amortization, loss
from partially owned entities, and the effect of straight-lining of rental income, (iii) the net change in
operating assets and liabilities of $10,142,000 and (iv) distributions of income from partially owned
entities of $475,000.
Net cash used in investing activities of $58,182,000 was comprised of (i) $51,105,000 of
development costs, construction in progress and real estate additions, (ii) $6,376,000 of investments in
partially owned entities and (iii) $701,000 of changes in restricted cash.
Net cash used in financing activities of $32,196,000 was comprised of (i) $41,114,000 of
contributions / (distributions), net, (ii) $2,082,000 for the repayments of borrowings, partially offset by
(iii) $11,000,000 of proceeds from borrowings.
128
Cash Flows for the Year Ended December 31, 2016
Cash and cash equivalents were $29,000,000 at December 31, 2016, compared to $74,966,000 at
December 31, 2015, a decrease of $45,966,000. This decrease resulted from $256,590,000 of net cash
used in investing activities, partially offset by $159,541,000 of net cash provided by operating activities
and $51,083,000 of net cash provided by financing activities. Our combined outstanding debt was
$1,165,014,000 at December 31, 2016, a $137,942,000 decrease from the balance at December 31, 2015.
Net cash provided by operating activities of $159,541,000 was comprised of (i) net income of
$61,974,000, (ii) $134,196,000 of non-cash adjustments, which include depreciation and amortization,
loss from partially owned entities, and the effect of straight-lining of rental income, and
(iii) distributions of income from partially owned entities of $1,520,000, partially offset by (iv) the net
change in operating assets and liabilities of $38,149,000.
Net cash used in investing activities of $256,590,000 was comprised of (i) $237,814,000 of
development costs, construction in progress and real estate additions and (ii) $24,993,000 of
investments in partially owned entities, partially offset by (iii) $4,000,000 of proceeds from repayment
of Vornado receivable and (iv) $2,217,000 of changes in restricted cash.
Net cash provided by financing activities of $51,083,000 was comprised of (i) $79,500,000 from
proceeds from borrowings from Vornado, partially offset by (ii) $24,364,000 for the repayments of
borrowings, (iii) $3,763,000 of contributions / (distributions), net, (iv) $220,000 of distributions to
non-controlling interests and (v) $70,000 of debt issuance costs.
Cash Flows for the Year Ended December 31, 2015
Cash and cash equivalents were $74,966,000 at December 31, 2015, compared to $12,018,000 at
December 31, 2014, an increase of $62,948,000. This increase resulted from $178,230,000 of net cash
provided by operating activities and $122,671,000 of net cash provided by financing activities, partially
offset by $237,953,000 of net cash used in investing activities. Our combined outstanding debt was
$1,302,956,000 at December 31, 2015, a $25,067,000 increase from the balance at December 31, 2014.
Net cash provided by operating activities of $178,230,000 was comprised of (i) net income of
$49,628,000, (ii) $146,652,000 of non-cash adjustments, which include depreciation and amortization,
loss from partially owned entities, and the effect of straight-lining of rental income, and
(iii) distributions of income from partially owned entities of $1,347,000, partially offset by (iv) the net
change in operating assets and liabilities of $19,397,000.
Net cash used in investing activities of $237,953,000 was comprised of (i) $234,285,000 of
development costs, construction in progress and real estate additions, (ii) $9,332,000 of investments in
partially owned entities and (iii) $1,336,000 of changes in restricted cash, partially offset by
(iv) $7,000,000 of proceeds from repayment of Vornado receivable.
Net cash provided by financing activities of $122,671,000 was comprised of (i) $341,460,000 of
proceeds from borrowings, (ii) $96,512,000 of proceeds from borrowings from Vornado, (iii) $16,495,000
of contributions/(distributions), net, partially offset by (iv) $315,824,000 for the repayments of
borrowings, (v) $13,600,000 of repayment of borrowings from Vornado, (vi) $2,359,000 of debt issuance
costs, and (vii) $13,000 of distributions to noncontrolling interests.
Cash Flows for the Year Ended December 31, 2014
Cash and cash equivalents were $12,018,000 at December 31, 2014, compared to $28,202,000 at
December 31, 2013, a decrease of $16,184,000. This decrease resulted from $236,923,000 of net cash
used in investing activities, partially offset by, $187,386,000 of net cash provided by operating activities
and $33,353,000 of net cash provided by financing activities.
129
Net cash provided by operating activities of $187,386,000 was comprised of (i) net income of
$81,299,000, (ii) $120,386,000 of non-cash adjustments, which include depreciation and amortization,
loss from partially owned entities and the effect of straight-lining of rental income, and
(iii) distributions of income from partially owned entities of $2,603,000, partially offset by (iv) the net
change in operating assets and liabilities of $16,902,000.
Net cash used in investing activities of $236,923,000 was comprised of (i) $126,323,000 of
development costs, construction in progress and real estate additions, (ii) $86,000,000 of investment in
Vornado receivable, (iii) $15,228,000 of acquisitions of land, (iv) $9,360,000 of investments in partially
owned entities, and (v) $2,500,000 of investments in loans receivable and other, partially offset by
(vi) $2,413,000 of changes in restricted cash and (vii) $75,000 of capital distributions from partially
owned entities.
Net cash provided by financing activities of $33,353,000 was comprised of (i) $185,000,000 of
proceeds from borrowings, partially offset by (ii) $85,289,000 for the repayments of borrowings,
(iii) $63,318,000 of contributions/(distributions), net, (iv) $3,032,000 of debt issuance costs, and
(v) $8,000 of distributions to noncontrolling interests.
Related Party Transactions
The accompanying combined financial statements present the operations of the office,
multifamily and other assets as carved out from the financial statements of Vornado. Certain
centralized corporate costs borne by Vornado for management and other services including, but not
limited to, accounting, reporting, legal, tax, information technology and human resources have been
allocated to the assets in the combined financial statements using reasonable allocation methodologies.
Allocated amounts are included as a component of general and administrative expenses on the
combined statements of income. A summary of amounts allocated is provided below.
For the Three
Months Ended
March 31,
2017
2016
(Amounts in thousands)
Payroll and fringe benefits . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the Year Ended December 31,
2016
2015
2014
$4,605
1,096
1,037
$4,604
899
554
$14,100
4,300
2,290
$13,791
3,852
2,324
$14,246
3,942
2,151
$6,738
$6,057
$20,690
$19,967
$20,339
The allocated amounts in the table above do not necessarily reflect what actual costs would
have been if the Vornado Included Assets were a separate standalone public company and actual costs
may be materially different.
In August 2014, we completed a $185,000,000 financing of the Universal Buildings, a 690,000
square foot office complex located in Washington, DC. In connection with this financing, pursuant to a
note agreement dated August 12, 2014, we used a portion of the financing proceeds and made a
$86,000,000 loan to Vornado at LIBOR plus 2.9% (4.43% at March 31, 2017) due August 2019. During
2016 and 2015, Vornado repaid $4,000,000 and $7,000,000, respectively, of the loan receivable. As of
March 31, 2017 and December 31, 2016, the balance of the receivable from Vornado was $75,894,000
and $75,062,000, respectively, and is recorded as ‘‘Receivable from Vornado’’ on our combined balance
sheets. Vornado intends to repay the outstanding balance of $75,894,000 at the time of the distribution.
130
A summary of the interest income earned on the receivable from Vornado is provided below.
(Amounts in thousands)
For the Three
Months Ended
March 31,
2017
2016
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
$831
$743
For the Year Ended December 31,
2016
2015
2014
$3,290
$2,976
$1,172
In connection with the development of The Bartlett, in February 2015, we entered into a note
agreement with Vornado whereby we can borrow up to $50,000,000 at LIBOR plus 2.9% (4.64% at
March 31, 2017). In October 2015, the note agreement was amended and the maximum borrowing
under the note agreement was increased to $100,000,000. In April 2016, we entered into an additional
note agreement with Vornado whereby we can borrow up to $60,000,000 at LIBOR plus 2.9% (4.12%
at March 31, 2017). In December 2016, we entered into an additional note agreement with Vornado
whereby we can borrow up to $10,000,000 at LIBOR plus 2.9% (4.59% at March 31, 2017). The
maximum total borrowing capacity under these note agreements is $170,000,000 and matures in
February 2020. As of March 31, 2017 and December 31, 2016, the amounts outstanding under these
note agreements were $172,320,000 and $166,525,000, respectively, and are recorded in ‘‘Payable to
Vornado’’ on our combined balance sheets. Vornado intends to contribute to JBG SMITH these note
agreements at the time of the distribution. During the three months ended March 31, 2017 and 2016,
we incurred interest expense of $1,795,000 and $755,000, respectively.
In June 2016, the $115,022,000 mortgage loan (including $608,000 of accrued interest) secured
by the Bowen Building, a 231,000 square foot office building located in Washington, DC, was repaid
with proceeds of a $115,630,000 draw on Vornado’s revolving credit facility. Given that the $115,630,000
draw on Vornado’s credit facility is secured by an interest in the property, such amount is included in
‘‘Payable to Vornado’’ on the combined balance sheet as of March 31, 2017. The mortgage will be
assigned to JBG SMITH and the note will be repaid with new financing proceeds from JBG SMITH.
During the three months ended March 31, 2017, we incurred interest expense of $561,000.
We have agreements with Building Maintenance Services (‘‘BMS’’), a wholly owned subsidiary
of Vornado, to supervise cleaning, engineering and security services at our properties. A summary of
the fees paid to BMS is provided below.
For the Three
Months Ended
March 31,
2017
2016
(Amounts in thousands)
BMS fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
131
$3,105
$3,154
For the Year Ended
December 31,
2016
2015
2014
$12,090
$12,441
$12,049
Quantitative and Qualitative Disclosures About Market Risk
We have exposure to fluctuations in interest rates, which are sensitive to many factors that are
beyond our control. Our exposure to a change in interest rates is summarized in the table below.
(Amounts in thousands)
Consolidated debt (contractual balances):
Variable Rate . . . . . . . . . . . . . . . . . . . . .
Fixed Rate . . . . . . . . . . . . . . . . . . . . . . .
Pro rata share of debt of non-consolidated
entities (non-recourse) (contractual
balances):
Variable Rate . . . . . . . . . . . . . . . . . . . . .
Fixed Rate . . . . . . . . . . . . . . . . . . . . . . .
March 31,
Balance
2017
Weighted
Average
Interest
Rate
2016
Effect of 1%
Change in
Base Rates
December 31,
Balance
Weighted
Average
Interest
Rate
$ 547,291
616,979
$1,164,270
2.28%
5.52%
$5,473
—
$5,473
$ 547,291
620,327
$1,167,618
2.11%
5.52%
$
2.03%
3.65%
$ 171
—
$ 171
$
1.87%
3.65%
17,050
150,150
$ 167,200
17,050
150,150
$ 167,200
The fair value of our consolidated debt is calculated by discounting the future contractual cash
flows of these instruments using current risk-adjusted rates available to borrowers with similar credit
ratings, which are provided by a third-party specialist. As of March 31, 2017 and December 31, 2016,
the estimated fair value of our combined debt was $1,639,269,000 and $1,192,267,000, respectively.
These estimates of fair value, which are made at the end of the reporting period, may be different from
the amounts that may ultimately be realized upon the disposition of our financial instruments.
132
BUSINESS AND PROPERTIES
Overview
JBG SMITH represents the combination of Vornado’s Washington, DC segment (which
operates as Vornado / Charles E. Smith) and the management business and certain Washington,
DC metropolitan area assets of The JBG Companies. Vornado / Charles E. Smith and The JBG
Companies are two of the largest, most noteworthy, best-in-class Washington, DC focused real estate
franchises, each with an over 50-year history of operations in the Washington, DC metropolitan area.
We believe that the combination of Vornado / Charles E. Smith and The JBG Companies
results in the following key strengths and competitive advantages that will contribute to our future
success:
• We are the market-leading and largest publicly traded real estate company focused on the
Washington, DC metropolitan area;
• Our assets consist of high-quality office, multifamily and retail properties concentrated in
what we believe are the most attractive Metro-served, urban-infill submarkets;
• We have a demonstrated track record of combining these uses in vibrant, amenity-rich
mixed-use projects that create and sustain value and competitive advantage over time;
• We believe that we are positioned for substantial revenue growth driven by near-term
opportunities embedded in our existing operating portfolio and our unrivaled near-term and
future development pipelines, which could allow us to roughly double the size of our
portfolio based on square footage and further enhance the quality of the portfolio;
• Our best-in-class Washington, DC area management platform has proven investment,
operating and development skills and leverages our experience in the use of our Placemaking
strategy to unlock value in large scale projects and neighborhood repositionings;
• We expect to access compelling acquisition opportunities with strong prospects for growth
through our proven acquisition platform that combines the longstanding market
relationships, reputation and expertise of both the Vornado and JBG Washington,
DC platforms;
• Our disciplined, research-based approach ensures our investment decisions are based on
current and forecasted market fundamentals and trends, which allows us to identify value
creating development, redevelopment and acquisition opportunities in existing and new
high-growth submarkets;
• We have a proven track record of superior capital allocation across investment opportunities
and market cycles;
• We will have a well-capitalized balance sheet and access to a broad range of funding sources
which will allow us to fund our significant growth opportunities while maintaining prudent
leverage levels; and
• We believe the Washington, DC metropolitan area economy and office market have
bottomed and that the region’s real estate market is uniquely positioned to experience a
stronger recovery over the next 24 to 36 months compared to other Gateway Markets.
Our Strategy
Our mission is to own and operate a high-quality portfolio of Metro-served, urban-infill office,
multifamily and retail assets concentrated in downtown Washington, DC, our nation’s capital, and other
leading urban infill submarkets with proximity to downtown Washington, DC and to grow this portfolio
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through value-added development and acquisitions. We have significant expertise in the Washington,
DC metropolitan area across multiple product types and consider office, multifamily and retail to be
our core asset classes. We are known for our creative deal-making and capital allocation skills and for
our deep pool of development and value creation expertise across product types. As the leading local
sharpshooter, our DC market experience is best-in-class and we have been trendsetters in our market
by mixing uses in projects that deliver the amenities and features that tenants demand.
One of our approaches to value creation involves utilizing a series of complementary disciplines
through a process that we call ‘‘Placemaking.’’ Placemaking involves strategically mixing high-quality
multifamily and commercial buildings with anchor, specialty and neighborhood retail in a high density,
thoughtfully planned and designed public space. Through this process, we are able to drive synergies,
and thus value, across those varied uses and create unique, amenity-rich, walkable neighborhoods that
are desirable and create significant tenant and investor demand. We believe that our Placemaking
approach will drive occupancy and rent growth across our entire portfolio, particularly with respect to
our concentrated and extensive land and building holdings in Crystal City. Crystal City’s attractive
attributes of its urban-infill location with close proximity to downtown Washington, DC, its access to
Metro and other key transportation infrastructure and strong surrounding demographics serve as an
incredible foundation upon which to build the mix of uses and amenities that today’s tenants demand.
We believe that the application of our Placemaking approach will allow us to increase Crystal City’s
attractiveness to potential tenants and create significant value for our shareholders. Our investment in
Crystal City will focus on creating a vibrant, 24-hour environment with an active retail heart through
the delivery of additional anchor and small store retail and the introduction of a greater mix of uses,
including new multifamily and the select conversion of office buildings to multifamily. These elements,
combined with thoughtfully planned and curated streetscapes and public spaces, are all critical to the
creation of a dynamic place that will help drive occupancy and rent growth throughout the submarket
over time. Importantly, the broader benefits of this repositioning are achievable without the need to
invest capital in the repositioning of each asset in the submarket. Many similar opportunities exist
elsewhere in our portfolio on a smaller scale, and we expect these to drive significant value over time
as well.
Our high-quality portfolio with significant embedded growth potential, well-capitalized balance
sheet, scale and highly experienced and talented local management team combine to make JBG
SMITH an attractive public company investment vehicle focused on the Washington, DC metropolitan
area. In addition, we expect our assets under construction and unrivaled near-term and future
development pipelines, which have a meaningful multifamily focus, will provide significant additional
potential growth and value creation opportunities that meet market demand over time.
Our Portfolio
We own and operate a portfolio of high-quality office and multifamily assets, many of which
are amenitized with ancillary retail. Our portfolio reflects our longstanding strategy of concentrating in
downtown Washington, DC and other leading urban-infill submarkets with proximity to downtown
Washington, DC that have high barriers to entry and key urban amenities, including being within
walking distance of the Metro. Over 98% of our operating assets are Metro-served, based on our share
of rentable square feet as of March 31, 2017. Our concentrated holdings and leading market share in
our targeted primary submarkets allow us to realize meaningful economies of scale and to enhance our
neighborhoods through Placemaking, thereby benefiting our overall holdings within these targeted
submarkets. Our fully-integrated platform has demonstrated capability in managing every aspect of real
estate ownership, including investment, development, construction management, finance, asset
management, property management and leasing. We expect that JBG SMITH will achieve significant
growth from the realization of embedded contractual rent growth, the lease-up of our operating assets,
the delivery and lease-up of our assets under construction and the development of our unrivaled
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near-term and future development pipelines aggregating over 23.4 million square feet (19.3 million
square feet at our share). While our operating portfolio is currently approximately 70% office and 26%
multifamily based on total square footage, a significant portion of our near-term and future
development pipelines is focused on multifamily assets; delivering these assets to the market will result
over time in our portfolio becoming more balanced between office and multifamily.
As of March 31, 2017, our operating portfolio consisted of 68 operating assets aggregating
approximately 20.2 million square feet (16.1 million square feet at our share), comprised of 50 office
assets aggregating approximately 14.1 million square feet (12.1 million square feet at our share), 14
multifamily assets aggregating 6,016 units (4,232 units at our share) and four other assets aggregating
approximately 765,000 square feet (348,000 square feet at our share).
Our assets are located primarily within attractive submarkets in the District of Columbia and in
the most desirable, infill, Metro-served submarkets outside of Washington, DC. These include the
Rosslyn-Ballston Corridor, Crystal City, Pentagon City and Reston in Virginia. In Maryland, the
majority of our assets are concentrated in Bethesda, Silver Spring and the Rockville Pike Corridor. Our
current and target submarkets generally share the following key attributes that make them highly
desirable and create significant tenant and investor demand:
• They are densely populated, urban-infill submarkets;
• They are well-established or emerging growth submarkets;
• They are Metro-served;
• They exhibit high barriers to new development due to limited available land and/or
entitlement constraints; and
• They have a high degree of walkability and feature strong clusters of retail and other
amenities.
Our Operating Portfolio
Our operating office portfolio is highly concentrated in five primary, Metro-served, urban-infill
submarkets: (i) District of Columbia, (ii) Crystal City and Pentagon City, (iii) the Rosslyn-Ballston
Corridor, (iv) Reston and (v) Bethesda. In addition to our ownership of over 4.2 million square feet
(2.8 million square feet at our share) across 14 assets in the District of Columbia, we have a leading
market position in Crystal City and Pentagon City, with ownership of over 6.4 million square feet in 20
wholly owned assets in an irreplaceable location along the Potomac River adjacent to Washington, DC
and the Ronald Reagan National Airport. We also have ownership of approximately 1.2 million square
feet (1.0 million square feet at our share) in four assets in the Rosslyn-Ballston Corridor, over
1.3 million square feet in six wholly owned assets in Reston, over 500,000 square feet in three wholly
owned assets in Bethesda, approximately 201,000 square feet (36,000 square feet at our share) in two
assets in the Rockville Pike Corridor and over 246,000 square feet (24,600 square feet at our share) in
one asset in Alexandria (Eisenhower Avenue). Our high-quality, diversified office tenant base spans
both the public and private sectors, reflecting the continued evolution and diversification of the
Washington, DC economy. Our tenants include many agencies and departments of the U.S. federal
government, which collectively comprise our largest tenant, with 80 leases generating approximately
22.3% of our share of annualized rent from our office and retail leases as of March 31, 2017. No other
tenant represents more than 3.4% of our share of annualized rent from our office and retail leases. In
addition, other major office tenants include Arlington County; non-profit organizations such as Family
Health International and the Public Broadcasting Service (‘‘PBS’’); leading private-sector companies
such as Lockheed Martin Corporation, General Electric, Booz Allen Hamilton, Accenture LLP, Abbott
Laboratories, Raytheon Company, and Noblis Inc.; financial institutions such as Citigroup and Wells
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Fargo; and well-respected law firms and other professional services companies such as Baker Botts LLP,
Sidley Austin LLP, Cooley LLP and Deloitte LLP.
Our operating multifamily portfolio consists of 14 multifamily assets comprising 6,016 units
(4,232 units at our share) and is located in some of the most vibrant neighborhoods of the District of
Columbia; Crystal City and Pentagon City, the Rosslyn-Ballston Corridor and Reston in Virginia; and
Bethesda, Silver Spring and the Rockville Pike Corridor in Maryland. Similar to our office buildings,
our multifamily assets are located in the most desirable locations, with 99% within walking distance of
the Metro, restaurants, entertainment and other key urban amenities. We believe our multifamily
portfolio includes some of the highest quality multifamily assets in the Washington, DC metropolitan
area. These assets include (i) The Bartlett, a recently developed 699-unit luxury property in Pentagon
City with a Whole Foods Market as its ground floor retail; (ii) Atlantic Plumbing, a 310-unit class-A
property in the heart of the vibrant U Street/Shaw neighborhood in Washington, DC; and
(iii) WestEnd25, a 283-unit luxury property situated in the coveted West End of Washington, DC.
Over 1.3 million operating retail square feet are embedded within our office and multifamily
assets—a key component of our Placemaking strategy. Our office and multifamily rental rates generally
reflect a premium relative to rates in their broader submarkets that we believe is attributable to the
presence of thoughtfully curated retail amenities, and we strive to incorporate, where possible,
high-quality, value-creating retail space into our office and multifamily assets. Our high-quality,
diversified retail tenant base includes anchor, specialty and neighborhood retail shops that create
thoughtfully planned and designed public space. Our retail tenants include Whole Foods, Trader Joe’s,
Starbucks, Dean & DeLuca as well as boutique tenants including Warby Parker, Landmark Theatre and
Bonobos.
In addition, we own interests in three standalone retail assets and one standalone hotel, the
345-room Crystal City Marriott.
Our Assets Under Construction and Near-Term and Future Development Pipelines
In addition to our operating portfolio, as of March 31, 2017, we owned:
• eight assets under construction totaling over 784,000 square feet (675,000 square feet at our
share) of office and 1,012 units (985 units at our share) of multifamily with an estimated
incremental investment as of March 31, 2017 of approximately $563.5 million ($517.5 million
at our share);
• a near-term development pipeline consisting of five assets totaling approximately 559,000
square feet of highly-efficient wholly owned office, 755 multifamily units (464 units at our
share) and over 65,000 square feet (6,500 square feet at our share) of retail in our other
asset category, located primarily in the District of Columbia and adjacent close-in
submarkets; and
• a future development pipeline comprised of 44 future development assets with an estimated
potential development density of over 22.1 million square feet (18.3 million square feet at
our share).
With respect to the five assets in our near-term development pipeline, the entitlement process
has been substantially completed and these projects, which will capitalize on the demand for
high-quality multifamily assets and highly-efficient, high-quality office assets, are in position for
construction to commence, and since March 31, 2017, construction has commenced on three of these
assets. See ‘‘Business and Properties—Recent Developments Since March 31, 2017.’’ In general, given
current market expectations, we estimate that we will commence construction on near-term
development multifamily assets within the 18 months following March 31, 2017, while commencement
of construction on near-term development office assets will more likely depend on either pre-leasing or
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attractive submarket supply and demand dynamics. Our near-term and future development pipelines
have the potential to roughly double the size of our portfolio by square footage and to further enhance
the quality of our portfolio. To take advantage of this opportunity, we plan to be an active developer,
particularly of multifamily assets, and intend to manage the delivery of our development growth
pipeline to meet market demand while prudently managing our long-term leverage levels and balance
sheet.
Recent Developments Since March 31, 2017
Since March 31, 2017, we have commenced construction on three assets from our near-term
development pipeline. Set forth below is a summary of these recent developments.
1900 N Street
In June 2017, JBG SMITH commenced construction on 1900 N Street, a wholly owned 271,433
rentable square foot office building located in the CBD submarket in Washington, DC. In April 2017,
we executed a letter of intent with Goodwin Proctor LLP to lease approximately 80,000 rentable square
feet for the top three floors of the building. We anticipate the execution of the lease in the third
quarter of this year. Upon execution of the lease, the property will be approximately 30% pre-leased.
The property is located two blocks from the Dupont Circle Metro station (red line) and four blocks
from the Farragut West Metro station (blue, orange and silver lines).
4747 Bethesda Avenue
In June 2017, JBG SMITH commenced construction on 4747 Bethesda Avenue, a wholly
owned 287,183 rentable square foot office building located in downtown Bethesda, Maryland. The
property is located at the Bethesda Metro station (red line) and is adjacent to the proposed purple line
Metro station. Upon completion, the office building will abut and connect to 4749 Bethesda Avenue
Retail, a 13,633 rentable square foot two-story retail space that was delivered in the fourth quarter of
2016 and is 100% pre-leased to Dean & DeLuca, thereby integrating the two properties. Situated at the
heart of downtown Bethesda, the property will serve as a the gateway to the successful Bethesda Row
shopping district, considered one of the Washington, DC area’s most vibrant live, work and play
environments due to its many dining options, shopping and service amenities.
7900 Wisconsin
In June 2017, JBG SMITH commenced construction on 7900 Wisconsin Avenue, a 17-story,
322-unit multifamily building with over 20,000 rentable square feet of retail space located in downtown
Bethesda, Maryland. The property is located four blocks from the Bethesda Metro station (red line).
We have pre-leased approximately 65% of the retail space to a national grocer that will anchor the
project. JBG SMITH owns a 50.0% interest in the venture that owns this asset.
Our Third-Party Asset Management and Real Estate Services Business
In addition to our portfolio, we have a third-party asset management and real estate services
business that represents the combination of Vornado / Charles E. Smith’s and JBG’s management
platforms that provides fee-based real estate services to nine JBG Funds, other JBG-affiliated entities,
joint ventures and third parties with whom we have long-standing relationships.
Our Management Team and Platform
We will be self-managed and led by JBG’s executive management team, and will combine the
best talent from each of Vornado / Charles E. Smith and JBG, providing us with one of the most
seasoned and experienced management teams in the Washington, DC market. Executive management
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of JBG SMITH will include W. Matthew Kelly (Chief Executive Officer), Robert Stewart (Executive
Vice Chairman), David Paul (President and Chief Operating Officer), James Iker (Chief Investment
Officer), Brian Coulter (Co-Chief Development Officer) and Kevin (‘‘Kai’’) Reynolds (Co-Chief
Development Officer), who are all current managing partners or partners and have an average tenure
of 18 years at JBG. These executives manage the JBG business today and have a longstanding track
record in the Washington, DC market, in which JBG is considered the leading local sharpshooter. The
senior management team of JBG SMITH will also benefit from the experience and expertise of
Stephen W. Theriot (Chief Financial Officer), who served as Vornado’s Chief Financial Officer from
June 2013 to February 2017, and Patrick J. Tyrrell (Chief Administrative Officer), who is currently
Vornado’s Chief Operating Officer of its Washington, DC division. Our commercial leasing team will be
led by David Ritchey (Executive Vice President) and will be supported by Jim Creedon, a 25-year
veteran with Vornado / Charles E. Smith, and a team of 14 professionals from both JBG and Vornado /
Charles E. Smith. Our board of trustees will consist of a majority of independent trustees. In addition
to the appointment of seven independent trustees, Steven Roth, Vornado’s Chairman and CEO, will be
Chairman of the board of trustees of JBG SMITH and Mitchell Schear, Vornado’s President of the
Washington, DC division, will also serve as a trustee of JBG SMITH. Michael Glosserman, W. Matthew
Kelly and Robert Stewart, all current managing partners of JBG, will also serve as trustees of JBG
SMITH.
The JBG management team is a proven steward of investor capital and has a long track record
of creating value for investors through numerous economic cycles. JBG has an over 50-year history in
the Washington, DC metropolitan area market. In 1999, JBG created its first discretionary investment
fund. As of March 31, 2017, JBG has raised approximately $3.7 billion of discretionary fund investment
capital for nine real estate investment funds, and has invested in over 235 assets on behalf of these
JBG Funds. As of May 31, 2017, the JBG Funds’ investments are projected to generate a realized and
unrealized aggregate gross leveraged IRR and equity multiple of 23.4% and 1.8x, respectively, while
typically employing leverage of approximately 60% of gross asset value. Gross leveraged IRR represents
the leveraged internal rate of return based on (i) equity invested or projected to be invested and
(ii) the total projected distributions from investments (including the return of equity invested), received
by the applicable fund, less all sales costs, debt service and all other property level fees where
applicable, but before deduction of carried interests and asset management fees where applicable. For
investments that are subject to a joint venture, gross leveraged IRR reflects the impact of any promote
that was either paid or earned or projected to be paid or earned. Equity multiple represents (i) the
sum of (a) the total contributions and distributions from investments received or projected to be
received by the applicable fund, calculated on a quarterly basis, plus (b) the equity invested or
projected to be invested divided by (ii) the equity invested or projected to be invested. (These gross
leveraged IRRs and equity multiples are not necessarily indicative of the future performance of JBG
SMITH, any asset in our portfolio or an investment in our common shares. These metrics are based in
part on investments that the JBG Funds sold prior to the combination and thus are not part of our
portfolio, and do not reflect the gross leveraged IRRs and equity multiples achieved by Vornado’s
Washington, DC business during the same time period. There is no assurance that our management will
be able to replicate the performance achieved by the JBG Funds with respect to these investments,
particularly given our use of lower leverage and a longer-term holding period.) Following the closing of
the combination, we do not intend to raise any future investment funds, and current funds will be
managed and liquidated over time. We expect to continue to earn fees from these funds as they are
wound down, as well as from any joint venture arrangements currently in place and any new joint
venture arrangements entered into in the future. The JBG management team will continue to own
direct equity co-investment and promote interests in the JBG Funds that are not being contributed to
JBG SMITH. As the JBG Funds are wound down over time, these economic interests will decrease and
be eliminated.
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Our broad transactional skill sets, multi-asset class experience, deep organizational and
financial expertise, and a long and successful track record built over 50 years, allow us to uniquely
source and execute on a broad array of opportunities. Our management platform is vertically integrated
across functions, including investment, development, construction management, finance, asset
management, property management and leasing, which allows us to efficiently execute on our business
strategy. Our platform is also horizontally integrated across real estate asset classes, focusing primarily
on office, multifamily and retail, which affords us the flexibility to respond to changing market
conditions by adjusting our business plans to deliver the type of asset that will meet current market
demand. As a result, we are able to execute large-scale mixed-use projects without the need to partner
with other operators or developers. In addition, we have developed an intimate knowledge of the
Washington, DC metropolitan area and a detailed understanding of the key submarkets on a
block-by-block basis. We believe that our in-depth market knowledge and extensive network of
longstanding relationships with real estate owners, developers, tenants, brokers, lenders, general
contractors, municipalities, local community organizations and other market participants provide us
with a sustainable competitive advantage.
We use a disciplined, research-based approach to identify value creating development,
redevelopment and acquisition opportunities in existing and new high-growth submarkets.
Our Balance Sheet
We will have a well-capitalized balance sheet and access to a broad range of funding sources
which we believe will allow us to execute our business plan. On a pro forma basis, JBG SMITH has
approximately $2.2 billion aggregate principal amount of consolidated debt outstanding ($2.2 billion at
our share) and our unconsolidated joint ventures had over $1.1 billion aggregate principal amount of
debt outstanding ($380 million at our share), resulting in a total of approximately $2.6 billion aggregate
principal amount of debt outstanding at our share. We will have a well-staggered debt maturity
schedule over the next five years, particularly considering our existing as-of-right extension options. We
will have significant liquidity upon the completion of the separation and combination with $511 million
of cash on a consolidated basis and $17 million of cash at our share of unconsolidated joint ventures,
and we are arranging a $1.4 billion credit facility under which we expect to have significant borrowing
capacity.
REIT Status
We plan to elect to be treated as a REIT in connection with the filing of our federal income
tax return for the taxable year that includes the distribution of our common shares by Vornado, and we
intend to maintain this status in future periods.
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Our Portfolio Summary
The following tables provide information about our portfolio as of March 31, 2017.
Summary Table—Total Portfolio as of March 31, 2017
Number of Assets
Wholly Owned
Operating . . . . . . . . . . . .
Under Construction . . . .
Near-Term Development(3)
Future Development(4) . . .
.
.
.
.
.
.
.
.
.
.
.
.
Rentable Square
Feet
Number of Units(1)
Estimated Potential
Development
Density(2)
.
.
.
.
49
5
2
26
14,730,510
1,022,099
558,616
—
3,908
547
0
577
—
—
—
17,074,500
Total Wholly Owned . . . . . . . . . .
82
16,311,225
5,032
17,074,500
Joint Ventures (at 100 Percent
Share)
Operating . . . . . . . . . . . . . .
Under Construction . . . . . .
Near-Term Development(3) . .
Future Development(4) . . . . .
.
.
.
.
19
3
3
18
5,435,656
602,431
759,226
—
2,108
465
755
—
—
—
—
5,040,500
Total Joint Ventures . . . . . . . . . .
43
6,797,313
3,328
5,040,500
Total Portfolio . . . . . . . . . . . . . .
125
23,108,538
8,360
22,115,000
Total Portfolio (at JBG SMITH
Share) . . . . . . . . . . . . . . . . . .
125
18,555,989
6,258
18,346,506
.
.
.
.
Note: Table shown at 100 percent share except where noted as JBG SMITH share. See the ‘‘Presentation of Information’’ on
page ii for disclosure regarding at-share metrics.
(1)
For assets under construction and near-term development assets, represents estimated number of units based on
current design plans.
(2)
Includes estimated potential office, multifamily and retail development density.
(3)
Refers to assets that have substantially completed the entitlement process and on which we intend to commence
construction within the 18 months following March 31, 2017, subject to market conditions.
(4)
Refers to assets that are development opportunities on which we do not intend to commence construction within
18 months of March 31, 2017.
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Summary Table—In-Service Operating Assets as of March 31, 2017
Number of Rentable Square Number of Percent
Assets
Feet
Units
Leased(1)
(2)
Annualized Rent
($000s)
Annualized Rent
Per Square Foot/
Monthly Rent Per
Unit(3)
Office . . . . . . . . . . . . . . . .
Office—Recently
Delivered(4) . . . . . . . . . .
49
14,063,749
—
87.1%
$532,422
$45.12
1
13,633
—
100.0%
1,099
—
Office - Total . . . . . . . . . .
50
14,077,382
—
87.1%
$533,521
$45.22
Multifamily . . . . . . . . . . . .
Multifamily—Recently
Delivered(4) . . . . . . . . . .
13
4,704,866
5,317
94.9%
$122,388
$1,973
1
619,372
699
87.1%
18,748
2,617
Multifamily—Total . . . . . .
14
5,324,238
6,016
94.0%
$141,136
$2,040
Other(5) . . . . . . . . . . . . . .
4
764,546
—
93.6%
$ 14,833
$31.89
Total/Weighted Average . . .
68
20,166,166
6,016
89.2%
$689,490
Total (at JBG SMITH
Share) . . . . . . . . . . . . .
68
16,083,997
4,232
87.4%
$553,425
Note: Table shown at 100 percent share except where noted as JBG SMITH share. See the ‘‘Presentation of Information’’ on
page ii for disclosure regarding at-share metrics.
(1)
Based on leases signed as of March 31, 2017, and is calculated as total rentable square feet less rentable square feet
available for lease divided by total rentable square feet.
(2)
Represents (i) for office and other assets, or the retail component of a mixed-use asset, in-place monthly base rent
before free rent, plus tenant reimbursements as of March 31, 2017, multiplied by 12, with triple net leases converted to
a gross basis by adding estimated tenant reimbursements to monthly base rent, and (ii) for multifamily assets, or the
multifamily component of a mixed-use asset, in-place monthly base rent before free rent as of March 31, 2017,
multiplied by 12. Annualized rent excludes rent from signed but not yet commenced leases.
(3)
For office assets, represents annualized office rent divided by occupied office square feet. For multifamily assets,
represents monthly multifamily rent divided by occupied units. For other assets, represents annualized rent divided by
occupied square feet. Occupied square footage may differ from leased square footage because leased square footage
includes leases that have been signed for space within the asset, but that have not yet commenced.
(4)
Refers to assets that have been delivered within the 12 months ended March 31, 2017.
(5)
Segment includes three standalone retail assets and the Crystal City Marriott, a standalone hotel totaling 266,000
square feet and 345 rooms. The Crystal City Marriott is excluded from percent leased, annualized rent, and annualized
rent per square foot metrics.
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Summary Table—Assets Under Construction as of March 31, 2017
Number of
Assets
Estimated
Rentable Square
Feet
Estimated Number
of Units
Percent
Pre-Leased
Assets Under Construction
Office . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multifamily . . . . . . . . . . . . . . . . . . . . . . . .
3
5
784,279
840,251
—
1,012
63.3%
N/A
Total/Weighted Average . . . . . . . . . . . . . . . . .
8
1,624,530
1,012
63.3%
Total (at JBG SMITH Share) . . . . . . . . . . . . .
8
1,492,928
985
64.3%
Note: Table shown at 100 percent share except where noted as JBG SMITH share. See the ‘‘Presentation of Information’’ on
page ii for disclosure regarding at-share metrics.
Summary Table—Near-Term and Future Development Assets as of March 31, 2017
Number of
Assets
Estimated
Rentable Square
Feet
Estimated Number
of Units
Estimated
Potential
Development
Density(1)
Near-Term and Future Development Assets
Near-Term Development Assets(2) . . . . . . .
Future Development Assets(3) . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
44
49
1,317,842
—
1,317,842
755
—
755
—
22,115,000
22,115,000
Total (at JBG SMITH Share) . . . . . . . . . . . .
49
979,064
464
18,346,506
Note: Table shown at 100 percent share except where noted as JBG SMITH share. See the ‘‘Presentation of Information’’ on
page ii for disclosure regarding at-share metrics.
(1)
Includes estimated potential office, multifamily and retail development density.
(2)
Refers to assets that have substantially completed the entitlement process and on which we intend to commence
construction within the 18 months following March 31, 2017, subject to market conditions.
(3)
Refers to assets that are development opportunities on which we do not intend to commence construction within
18 months of March 31, 2017.
Our Competitive Strengths
We believe that our extensive real estate operating and investment platform and our
high-quality, urban-infill, Metro-served portfolio provide us with certain competitive advantages
outlined below. We believe these competitive advantages will allow us to deliver significant income
growth through in-place embedded contractual revenue growth, lease-up of our operating assets,
delivery and lease-up of our assets under construction and near-term and future development and
acquisition opportunities.
Market-Leading, Largest Publicly Traded Real Estate Company Focused on the Washington,
DC Metropolitan Area. JBG SMITH represents the combination of Vornado / Charles E. Smith and
The JBG Companies, two of the largest, most noteworthy, best-in-class Washington, DC focused real
estate franchises, each with an over 50-year history of operations in the Washington, DC metropolitan
area. We have assembled the largest portfolio, by rentable square feet, of high-quality commercial real
estate assets in the Washington, DC metropolitan area of any publicly traded real estate company. Our
portfolio is comprised primarily of office and multifamily assets, many of which are amenitized with a
complementary retail component. We operate a platform that is both vertically integrated across
functions, including investment, development, construction management, finance, asset management,
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property management and leasing, and horizontally integrated across real estate asset classes, focusing
primarily on office, multifamily and retail. Our integrated structure, as well as the size and scope of our
platform, enables us to identify value-creation opportunities and realize significant operating
efficiencies. Our organization is comprised of over 1,100 employees, including over 400 corporate
employees in investment, development, construction management, finance, asset management, property
management, leasing and other supporting functions. Through our complementary in-house disciplines,
we seek to enhance asset values through proactive asset and property management.
High-Quality Assets in Most Attractive Submarkets. Our portfolio of high-quality operating
assets is primarily located within what we believe are the most attractive Metro-served, urban-infill
submarkets of the Washington, DC metropolitan area, one of the highest barrier-to-entry markets in
the United States. Our general strategy is to invest in assets that we anticipate, by virtue of location,
physical quality, amenities or other specific features, will possess a sustainable ability to outperform the
market, maintain high occupancy levels through all market cycles, attract high-quality tenants and
appeal to a broad range of buyers if offered for sale.
• High-Quality Assets. Our portfolio is comprised of high-quality office and multifamily assets,
many of which have been recently constructed or renovated and are amenitized with ancillary
retail. Our operating portfolio was over 89% leased (87% at our share) across all of our
asset classes as of March 31, 2017. We believe this provides built-in growth potential as we
lease up to a stabilized occupancy level. Moreover, we believe that we have a strong,
creditworthy tenant base, with agencies and departments of the U.S. federal government
representing approximately 22.3% of our share of annualized rent from our office and retail
leases as of March 31, 2017. No other tenant accounted for more than 3.4% of our share of
annualized rent from our office and retail leases as of March 31, 2017. The majority of our
non-GSA office and retail leases contain contractual rent escalators. In addition, we benefit
from high-quality long-term leases, with a weighted average lease term (including leases
signed but not yet commenced) of 6.3 years as of March 31, 2017.
• Most Attractive Submarkets. We have invested in what we believe are the most attractive
submarkets within the Washington, DC metropolitan area. These submarkets are in high
barrier locations, are Metro-served, have a high degree of walkability and feature strong
clusters of nearby amenities. Based on our share of rentable square feet as of March 31,
2017, over 98% of our assets are Metro-served. This concentration of assets positions us well
to capitalize on improving real estate market fundamentals, with 76% of Washington, DC
metropolitan area office leasing activity for the five year period ended March 31, 2017 within
0.5 miles of an existing or planned Metro station, according to JLL, although only 63% of
the overall market is Metro-served. Moreover, the submarkets in which we operate
(excluding Crystal City/Pentagon City) have historically outperformed other Washington, DC
metropolitan area submarkets (see the charts below). While Crystal City/Pentagon City’s
metrics were not as compelling over the same time period (largely due to BRAC and
sequestration), we believe that this submarket is positioned for recovery because it shares
many of the characteristics of other outperforming JBG SMITH submarkets such as an
urban street grid, proximity to major demand drivers and access to all forms of
transportation. We believe that once we have been able to apply our Placemaking strategy,
Crystal City/Pentagon City will perform in line with our other submarkets.
In both office and multifamily market metrics, JBG SMITH’s submarkets (excluding Crystal
City/Pentagon City) have outperformed non-JBG SMITH submarkets.
In the office sector, as of March 31, 2017, JBG SMITH’s submarkets (excluding Crystal City/
Pentagon City):
• posted current asking rents above the market average;
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• had seen rent growth over the preceding 10 years far in excess of non-JBG SMITH
submarkets; and
• showed significantly lower historical vacancy rates over the preceding 10 years than the
broader market.
Office asking rents relative to market average
10-year office asking rent growth comparison
Change in average asking rents
Premium/discount relative to market average as of Q1 2017
30%
25%
20%
20%
26.7%
10%
15%
23.4%
0%
-4.5%
10%
-10%
-21.8%
5%
-20%
7.1%
2.8%
-30%
0%
JBG Submarkets
(excluding Crystal City/
Pentagon City)
Crystal City/Pentagon City
Non-JBG Submarkets
JBG Submarkets
(excluding Crystal City/
Pentagon City)
6JUN201719120295
Source: JLL Research
Crystal City/Pentagon City
Non-JBG Submarkets
6JUN201719114713
Source: JLL Research
10-year office average vacancy comparison
10-Year Historical Vacancy Average
20%
18%
16%
14%
12%
10%
17.1%
17.7%
8%
6%
12.8%
4%
2%
0%
JBG Submarkets
(excluding Crystal City/
Pentagon City)
Crystal City/Pentagon City
Non-JBG Submarkets
6JUN201719114837
Source: JLL Research
In the multifamily sector, as of March 31, 2017, JBG SMITH’s submarkets (excluding Crystal
City/Pentagon City):
• posted asking rents that commanded a significant premium to the market average
compared to a discount in non-JBG SMITH submarkets;
• had seen rent growth over the preceding 10 years on par with Crystal City/Pentagon City
and above the non-JBG SMITH submarkets, even with inventory growth far above that
seen in non-JBG SMITH submarkets or in Crystal City/Pentagon City;
• absorbed new units over the preceding 10 years at a far greater rate than the non-JBG
SMITH submarkets. Despite a slower pace of absorption over the 10 year time period, the
Crystal City/Pentagon City market has seen a recent uptick in absorption through
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March 31, 2017 posting more units absorbed as a percentage of inventory than JBG
SMITH or non-JBG SMITH submarkets; and
• saw outsized inventory growth that helped to drive strong absorption performance.
Multifamily asking rents relative to market average
10-year multifamily asking rent growth comparison
Premium/discount relative to market average of $2.42/s.f. for Class A&B, High/Mid rise as of Q1 2017
Change in average asking rents (per square foot; mid/high-rise assets)
20%
40%
15%
35%
10%
30%
14.5%
5%
25%
0%
20%
-0.4%
-5%
-13.6%
37.8%
33.9%
29.8%
15%
-10%
10%
-15%
5%
-20%
JBG Submarkets
(excluding Crystal City/
Pentagon City)
Crystal City/Pentagon City
Non-JBG Submarkets
6JUN201719412373
Source: JLL Research
0%
JBG Submarkets
(excluding Crystal City/
Pentagon City)
Crystal City/Pentagon City
Non-JBG Submarkets
6JUN201719114960
Source: JLL Research
10-year multifamily net absorption comparison
Net change in occupied units over the noted period through March 31, 2017
90%
80%
70%
60%
50%
40%
76.7%
30%
46.7%
20%
24.2%
10%
0%
JBG Submarkets
(excluding Crystal City/
Pentagon City)
Crystal City/Pentagon City
Non-JBG Submarkets
6JUN201719412497
Source: JLL Research
Concentrated Submarket Ownership. Our assets are located primarily within attractive
submarkets in the District of Columbia and in the most desirable, infill, Metro-served submarkets
outside of Washington, DC. These include the Rosslyn-Ballston Corridor, Crystal City, Pentagon City
and Reston in Virginia. In Maryland, the majority of our assets are concentrated in Bethesda, Silver
Spring and the Rockville Pike Corridor. Through concentrating our investments in these key
submarkets, we believe we achieve improved asset performance across all of our assets within a
submarket as we apply our development, redevelopment and Placemaking skills that help enhance the
overall attractiveness of the market to tenants and investors. In addition, this concentrated ownership
allows us to create value in our operating and development portfolio by recognizing synergies in
operating expenses in our portfolio, managing submarket supply through our near-term and future
development pipelines, and fostering strong relationships with local jurisdictions that are key to
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navigating the entitlement process. Finally, our concentrated ownership provides us with greater access
to new acquisition and development opportunities and the ability to unlock value not available to
competitors lacking the same submarket scale.
Strong Management Team with Extensive Market Expertise and Interests Aligned with
Shareholders. We will be self-managed and led by JBG’s executive management team, and will
combine the best talent from each of Vornado / Charles E. Smith and JBG, providing us with one of
the most seasoned and experienced management teams in the Washington, DC market. Our multigenerational leadership team has over 50 years of single-market focus in the Washington, DC
metropolitan area. Our team has an intimate knowledge of the Washington, DC area real estate market
and deep local relationships.
Executive management of JBG SMITH will include W. Matthew Kelly (Chief Executive
Officer), Robert Stewart (Executive Vice Chairman), David Paul (President and Chief Operating
Officer), James Iker (Chief Investment Officer), Brian Coulter (Co-Chief Development Officer), and
Kai Reynolds (Co-Chief Development Officer), who are all current managing partners or partners of
JBG and have an average tenure of 18 years. These executives manage the JBG business today and
have a longstanding track record in the Washington, DC market, in which JBG is considered the
leading local sharpshooter. The senior management team of JBG SMITH will also benefit from the
experience and expertise of Stephen W. Theriot (Chief Financial Officer), who served as Chief
Financial Officer of Vornado from June 2013 to February 2017, and Patrick J. Tyrrell (Chief
Administrative Officer), who is currently Vornado’s Chief Operating Officer of its Washington, DC
division. Our commercial leasing team will be led by David Ritchey (Executive Vice President) and will
be supported by Jim Creedon, a 25-year veteran with Vornado / Charles E. Smith, and a team of 14
professionals from both JBG and Vornado / Charles E. Smith. Our board of trustees will consist of a
majority of independent trustees. Steven Roth, Vornado’s Chairman and CEO, will be Chairman of the
board of trustees of JBG SMITH and Mitchell Schear, Vornado’s President of the Washington, DC
division, will also serve as a trustee of JBG SMITH. Michael Glosserman, W. Matthew Kelly and
Robert Stewart, all current managing partners of JBG, will also serve as trustees of JBG SMITH.
JBG SMITH’s leadership will be meaningfully aligned with the interests of shareholders, with
the focus on maximizing the value of JBG SMITH common shares. Our management team (excluding
Michael Glosserman, who will be a member of our board of trustees) is expected to own approximately
5% of the economic interests in JBG SMITH, which represents the majority of their collective net
worth, and our management team and board of trustees are expected to beneficially own or represent
approximately 13% of the economic interests in JBG SMITH. The common limited partnership units
that the JBG management team will receive in connection with the contribution of the JBG third-party
asset management and real estate services business will be subject to certain vesting and transfer
restrictions, with 50% vesting upon the closing of the combination and the other 50% vesting in equal
monthly installments beginning on the first day of the 31st month after the combination and ending on
the first day of the 60th month after the combination as long as the individual remains employed by
JBG SMITH. Our management team will also be restricted from redeeming 50% of these units for
JBG SMITH common shares for three years, and from redeeming the other 50% of these units for
JBG SMITH common shares for five years, following the closing of the combination, further aligning
their interests with those of our shareholders, except that up to 10% of an individual’s total units may
be sold, pledged or redeemed for JBG SMITH common shares during this period (subject to the
transfer and redemption restrictions imposed on the units generally by the limited partnership
agreement of JBG SMITH LP, which we refer to as the Partnership Agreement). See ‘‘The Separation
and the Combination—The Combination—The MTA—Consideration’’ for more information about the
vesting and transfer restrictions applicable to this portion of our management team’s equity interests.
See ‘‘The Separation and the Combination—The Combination—Combination Transactions’’ for
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information about the interests that certain principals of the JBG Parties who will become our
executive officers will retain in certain JBG Funds following the combination.
Superior Capital Allocation Skills. We have a proven track record of managing our risk, cost
of capital and capital sources by utilizing various capital allocation strategies across investment
opportunities and market cycles. We believe that we have the ability and expertise to use not only our
own balance sheet but also to deploy capital from strategic third-party investors through joint ventures.
While we intend to use our own balance sheet as our primary source of capital, we may continue to
partner with such third parties in order to selectively develop mixed-use projects or access other
opportunities. We have longstanding relationships and a long track record of success with many thirdparty capital partners. We intend to selectively partner with such third parties in order to recognize
value and recycle capital from stabilized assets into higher growth opportunities. In addition to multiple
sources of equity capital, we have a variety of relationships with providers of debt capital that we
intend to continue to utilize. We also use various capital allocation strategies to manage risks associated
with our development activities. For example, we often use capital to option, rather than purchase, raw
land positions until the property has received appropriate entitlements, allowing us to pre-lease these
development projects prior to or soon after closing on the land. See ‘‘—Case Studies’’ beginning on
page 154.
The JBG management team is a proven steward of investor capital and has a long track record
of creating value for investors through numerous economic cycles. In 1999, JBG created its first
discretionary investment fund. As of March 31, 2017, JBG has raised approximately $3.7 billion of
discretionary fund investment capital for nine real estate investment funds, and has invested in over
235 assets on behalf of these JBG Funds. As of May 31, 2017, the JBG Funds’ investments are
projected to generate a realized and unrealized aggregate gross leveraged IRR and equity multiple of
23.4% and 1.8x, respectively, while typically employing leverage of approximately 60% of gross asset
value. (These gross leveraged IRRs and equity multiples are not necessarily indicative of the future
performance of JBG SMITH, any asset in our portfolio or an investment in our common shares. These
metrics are based in part on investments that the JBG Funds sold prior to the combination and thus
are not part of our portfolio, and do not reflect the gross leveraged IRRs and equity multiples achieved
by Vornado’s Washington, DC business during the same time period. There is no assurance that our
management will be able to replicate the performance achieved by the JBG Funds with respect to these
investments, particularly given our use of lower leverage and a longer-term holding period.)
Proven Platform for Value Creation with Investment, Development and Leasing Expertise.
The JBG management team, which will lead JBG SMITH following the combination, has an extensive
track record of investing in, developing and repositioning assets since the first JBG Fund made its first
investment in 2000, spanning multiple market cycles, shifting dynamics and a variety of asset classes:
• Invested in more than 235 assets representing approximately $13.0 billion in gross asset value
(based on total cost, including acquisition price and additional investment for development),
including over 19.5 million square feet of office, 14,750 multifamily units, over 4.0 million
square feet of retail, 5,700 hotel rooms, 3,200 for-sale multifamily units and townhomes and
25.0 million square feet of estimated potential future development density.
• Sold more than 100 assets for over $7.0 billion in gross asset value (based on sales prices),
including over 10.0 million square feet of office, 6,000 multifamily units, 2.0 million square
feet of retail, 2,400 hotel rooms, 2,000 for-sale multifamily units and townhomes, and
2.0 million square feet of estimated potential future development density.
• Completed more than 80 development projects with an associated cost of over $5.0 billion,
consisting of over 9.5 million square feet of office, 6,700 multifamily units, 1.5 million square
feet of retail, 2,100 hotel rooms and 2,000 for-sale multifamily units and townhomes.
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• Redeveloped or repositioned more than 40 assets including over 4.0 million square feet of
office, 1,600 multifamily units, 232,000 square feet of retail and 3,900 hotel rooms.
The JBG SMITH management team has a long history of opportunistic acquisitions and
development as market cycles dictate, although it has not been immune to national and local economic
trends that are unrelated to its management of assets. JBG SMITH has in-house mixed-use expertise
and the retail leasing team to support it. Our dedicated mixed-use operating and development teams
have a deep bench of product experts, and our in-house multidisciplinary expertise provides a
competitive advantage in executing large-scale, mixed-use projects. In addition, our experience owning,
operating and managing a range of asset classes gives us a unique capability to identify redevelopment
and adaptive reuse opportunities where we can create value.
In addition, JBG SMITH combines the leasing teams of the JBG management platform and
Vornado / Charles E. Smith, which, collectively, over the three years ended March 31, 2017, averaged
an annual leasing volume of approximately 3.0 million square feet of office space, 11,000 multifamily
leases and approximately 710,000 square feet of retail space across our owned and third-party managed
portfolios.
Our senior management and our 16-person commercial leasing team has deep and
longstanding relationships with key office tenants and broker representatives, which allows us to
effectively lease-up vacant space, secure renewals of existing leases and identify tenants to pre-lease our
development pipeline. We focus on establishing strong relationships with our tenants in order to
understand their long-term business needs, which we believe enhances our ability to retain and expand
quality tenants, facilitates our leasing efforts and maximizes cash flow from our assets. For example,
our long-standing relationship with Corporate Executive Board as their previous landlord helped us to
secure them as an anchor tenant for our approximately 530,000 square foot office tower now under
construction in Rosslyn. Our research team tracks each major tenant lease expiration in the market in
order to anticipate upcoming and future leasing opportunities. We have secured major leases with
multiple GSA tenants over the past decade as a result of our deep understanding of the GSA lease
process and our expertise in meeting the unique requirements of government tenants.
Our senior management and our multifamily leasing and unit-pricing teams have strong
visibility into pricing and leasing-pace dynamics in the markets in which we operate. This allows us to
price, on a unit by unit basis, each of our multifamily assets in order to maximize revenue, lease up
pace, and renewal conversion rate. Our visibility into market dynamics allows us to incorporate into our
multifamily developments the key amenities and unit design features most sought after by tenants.
In addition, our retail leasing team has strong and deep retailer relationships with key anchor
tenants that enhance our Placemaking activities, including Whole Foods Market, Starbucks, Harris
Teeter, Trader Joe’s, and multiple other local, regional and national tenants such as Warby Parker and
Bonobos. The significant size and attractive locations presented by our retail and development portfolio
allow us to maintain and cultivate active relationships with major retailers by offering access to multiple
locations that fit their needs, including the highly attractive but difficult to access emerging growth
markets.
Significant Development Pipeline to Drive Growth. We believe that we control one of the
largest development pipelines of any REIT generally and in the Washington, DC metropolitan area
specifically and the largest pipeline of Metro-served sites based on potential development density. We
believe our near-term and future development pipelines position us for significant future growth. We
own five near-term development assets with an aggregate of over 1.3 million square feet (1.0 million
square feet at our share). In addition, we own or control 44 future development assets with an
estimated potential development density of over 22.1 million square feet (18.3 million square feet at
our share). Similar to our operating assets and assets under construction, our near-term development
and future development assets are located in what we believe are the most attractive submarkets and
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will have a meaningful multifamily focus, which we believe will result over time in our portfolio
becoming more balanced between office and multifamily. We believe our large and well-located future
development pipeline provides us an advantage over other market participants who do not already own
development sites within these desirable submarkets and allows JBG SMITH to be well positioned for
future growth.
Ability to Create Value through Placemaking. One of our approaches to maximizing the value
of our assets includes utilizing a series of complementary disciplines through a process that we call
‘‘Placemaking.’’ Placemaking involves strategically mixing high-quality multifamily and commercial
buildings with anchor, specialty and neighborhood retail in a high-density, thoughtfully planned and
designed public space. This approach is facilitated by our extensive proprietary research platform and
deep understanding of submarket dynamics.
Through this process, we are able to drive synergies across varied uses and create unique,
amenity-rich, walkable neighborhoods that are desirable and create significant tenant and investor
demand. As part of this process, we build high-quality, distinctive and unique assets that allow the user
experience to extend beyond street level into the building itself. As a result, we believe this approach
leads to stronger office, multifamily and retail demand, leading to higher rents, stronger leasing velocity
and, ultimately, greater asset values. We believe that our approach has helped mitigate the impact of
new competitive supply on our projects and has allowed us to scale our success across neighborhoods.
We plan to use this Placemaking process, among other initiatives, in Crystal City in order to
create value over time. Given Crystal City’s attractive attributes of its urban-infill location with close
proximity to downtown Washington, DC, its access to Metro and other key transportation infrastructure
and strong surrounding demographics, we see an opportunity to position Crystal City as a vibrant,
amenity-rich destination that can offer a range of uses that will drive office, multifamily and retail
demand over time. Moreover, given the critical mass we control in Crystal City, we believe the benefits
of our Placemaking can have a significant impact on the submarket and the value of our assets.
We have successfully developed a number of differentiated projects that achieved top-of-market
rental rates and sales prices, while also attracting a diverse group of sought-after retailers as tenants.
We believe our Placemaking efforts can benefit entire neighborhoods, creating value across a broad
base of assets and accelerating the transformation of submarkets into desirable environments for
tenants and residents. See ‘‘—Case Studies’’ beginning on page 154.
Extensive Market Knowledge and Longstanding Relationships Drive Significant, Unique Deal
Flow. With over 50 years of experience in the Washington, DC metropolitan area, our team possesses
a deep and detailed understanding of the market and the growth dynamics of the region. Since 2000,
JBG has developed or acquired over 19.5 million square feet of office, 14,750 multifamily units, over
4.0 million square feet of retail, 5,700 hotel rooms, 3,200 for-sale multifamily units and townhomes and
25.0 million square feet of estimated potential future development density in the region, representing
approximately $13.0 billion in gross asset value (based on total capitalization), illustrating the expertise
that we believe serves as a competitive advantage. The legacy of Vornado / Charles E. Smith is also
significant based on its scale, financial strength and development track record, having developed over
time almost the entire contributed portfolio of Vornado / Charles E. Smith assets. Our in-depth market
knowledge and extensive network of longstanding relationships with a broad range of real estate
owners, developers, brokers, lenders, general contractors, municipalities, local community organizations
and other market participants has consistently provided us with access to an ongoing pipeline of
attractive investment opportunities in our core submarkets that may not be available to our
competitors. We believe that our reputation for performance and execution also provides us with a
competitive advantage over other market participants. See ‘‘—Case Studies’’ beginning on page 154.
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Disciplined, Research-Based Approach. We augment our deep and seasoned understanding of
the Washington, DC market with a dedicated in-house research function focused on ensuring that our
investment decisions are based on current and forecasted market fundamentals and trends in an effort
to identify opportunities and mitigate risks. We regularly track changes in the market supply pipeline,
construction costs, net absorption, vacancy rates, and rental rate growth in addition to demographic
trends, job and population growth patterns, and other leading indicators to determine shifting trends in
demand. We synthesize that data to identify value creating development, redevelopment and acquisition
opportunities in existing and new high-growth submarkets. For example, the design, amenity packages,
target unit mix, and other features of our multifamily development projects are influenced by a detailed
research process. This includes surveys of existing and proposed competitive projects, tenant focus
groups, and analysis of trends in tenant preference, both locally and in other urban markets nationally
and internationally, to identify unmet or underserved segments of demand and maximize rent
generating potential. Retail and office developments benefit from similar tailored analyses. Before
commencing any new development, we evaluate the supply and demand landscape and other market
fundamentals to determine whether proceeding or pausing is the right course of action.
Well-Capitalized Balance Sheet to Support Growth. We will have a well-capitalized balance
sheet and access to a broad range of funding sources which we believe will allow us to execute our
business plan. On a pro forma basis, JBG SMITH has approximately $2.2 billion aggregate principal
amount of consolidated debt outstanding ($2.2 billion at our share) and our unconsolidated joint
ventures had over $1.1 billion aggregate principal amount of debt outstanding ($380 million at our
share), resulting in a total of approximately $2.6 billion aggregate principal amount of debt outstanding
at our share. We will have a well-staggered debt maturity schedule over the next five years, particularly
considering our existing as-of-right extension options. We will have significant liquidity upon the
completion of the separation and combination with $511 million of cash on a consolidated basis and
$17 million of cash at our share of unconsolidated joint ventures, and we are arranging a $1.4 billion
credit facility under which we expect to have significant borrowing capacity.
Successful Third-Party Asset Management and Real Estate Services Business. Since 1999,
JBG has served as the general partner and managing member of nine real estate investment funds for
institutional investors and high net worth individuals with approximately $3.7 billion of discretionary
fund investment capital and has invested in more than 235 assets on behalf of the JBG Funds. The
JBG third-party asset management and real estate services platform provides fee-based real estate
services to the JBG Funds and other JBG-affiliated entities as well as joint venture partners and thirdparty clients. Although a significant portion of the assets and interests in assets owned by certain of the
JBG Funds were contributed in the combination, the JBG Funds retained certain assets that are not
consistent with our long-term business strategy, which can generally be categorized as (i) condominium
and townhome assets, (ii) hotels, (iii) assets likely to be sold in the near term, whether because they
are under contract for sale, being marketed for sale or likely to be marketed for sale in the near term,
(iv) assets located in markets that will not be core markets for JBG SMITH going forward or that are
non-Metro-served, (v) noncontrolling joint venture interests and (vi) single-tenant leased General
Services Administration assets that are encumbered with long-term, hyper-amortizing bond financing
that is not consistent with the financing strategy of JBG SMITH. With respect to these funds and for
most assets that we hold through joint ventures, we will continue to provide the same asset
management, property management, construction management, leasing and other services that we
provided prior to the combination. Following the closing of the combination, we do not intend to raise
any future investment funds, and current funds will be managed and liquidated over time. We expect to
continue to earn fees from these funds as they are wound down, as well as from any joint venture
arrangements currently in place and any new joint venture arrangements entered into in the future.
The JBG management team will continue to own direct equity co-investment and promote interests in
the JBG Funds that are not being contributed to JBG SMITH. As the JBG Funds are wound down
over time, these economic interests will decrease and be eliminated.
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In addition, Vornado contributed its third-party asset management and real estate services
business which we believe is complementary to JBG’s. JBG SMITH would have earned approximately
$17.7 million and $78.7 million in combined pro forma revenue from such fees ($17.1 and $78.7 million
at our share) for the three months ended March 31, 2017 and the year ended December 31, 2016,
respectively.
We expect that the fees we continue to earn in connection with providing such services will
enhance our overall returns, provide additional scale and efficiency in our operating, development and
acquisition businesses and generate capital which we can use to absorb overhead and other
administrative costs of the platform. This scale provides competitive advantages, including market
knowledge, buying power and operating efficiencies across all product types. We also believe that our
existing relationships arising out of our third-party asset management and real estate services business
will continue to provide potential capital and new investment opportunities. See ‘‘—Our Third-Party
Asset Management and Real Estate Services Business.’’
Business and Growth Strategies
Our primary business objectives are to maximize cash flow and generate strong risk-adjusted
returns for our shareholders. We intend to pursue these objectives through the following business and
growth strategies:
Focus on High-Quality Mixed-Use Assets in Metro-Served Submarkets in the Washington,
DC Metropolitan Area. We intend to continue our longstanding strategy of owning and operating
assets within urban-infill, Metro-served submarkets in the Washington, DC metropolitan area with high
barriers to entry and key urban amenities, including being within walking distance of the Metro. These
submarkets, which include the District of Columbia; Crystal City and Pentagon City, the RosslynBallston Corridor, Reston and Alexandria in Virginia; and Bethesda, Silver Spring and the Rockville
Pike Corridor in Maryland, generally feature compelling economic and demographic attributes, as well
as a premier transportation infrastructure that caters to the preferences of our office, multifamily and
retail tenants. We believe these positive attributes will allow our assets located in these submarkets to
outperform the Washington, DC metropolitan area as a whole.
Realize Contractual Embedded Growth. We believe there are substantial near-term growth
opportunities embedded in our existing operating portfolio, many of which are contractual in nature,
including the burn-off of free rent, contractual rent escalators in our non-GSA office and retail leases
based on increases in CPI or a fixed percentage, and signed but not yet commenced leases. For the
three months ended March 31, 2017, we granted free rent totaling approximately $14.8 million
($12.6 million at our share). As of March 31, 2017, we had 35 signed but not yet commenced leases
totaling over $58.1 million ($43.1 million at our share) of annualized rent, 30 of which are estimated to
commence by March 31, 2018 totaling approximately $37.8 million of annualized rent ($32.9 million at
our share).
Drive Incremental Growth Through Lease-up of Our Assets. We believe that we are
well-positioned to achieve significant additional internal growth through lease-up of our current
vacant space and our recently developed assets, given our leasing capabilities and the current strong
tenant demand for high-quality space in our submarkets. For example, as of March 31, 2017 we had
12 operating office assets, totaling over 3.4 million square feet, which were on average 74.0% leased
resulting in over 883,000 square feet available for lease. We also had one multifamily asset that was
delivered during the preceding 12 months, with 699 units, which was 86.4% leased, resulting in
95 multifamily units available for lease.
151
We have accomplished significant leasing across our owned and third-party managed portfolios
for the three years ended March 31, 2017, averaging an annual leasing volume of approximately
3.0 million square feet of office space, 11,000 multifamily leases and approximately 710,000 square feet
of retail space. Based on current market demand in our submarkets and the efforts of our dedicated
in-house leasing teams, we expect to significantly increase our occupancy and revenue across our
portfolio generally, and in our lease-up assets in particular. See ‘‘—Case Studies’’ beginning on
page 154.
Deliver Our Assets Under Construction. As of March 31, 2017, we owned eight high-quality
assets under construction with an estimated incremental investment of $563.5 million ($517.5 million at
our share). Our assets under construction consist of over 784,000 square feet (675,000 square feet at
our share) of office space and 1,012 units (985 units at our share) of multifamily, all of which are
Metro-served. We believe these projects provide significant potential for value creation. As of
March 31, 2017, over 496,000 square feet, or 63.3% (64.3% at our share), of our office assets under
construction were pre-leased. See ‘‘—Case Studies’’ beginning on page 154.
Asset
Location
Submarket
Office
CEB Tower at Central Place(4) . . Arlington, VA Rosslyn
L’Enfant Plaza Office—Southeast Washington, DC Southwest
RTC—West Retail . . . . . . . . Reston, VA
Reston
Estimated
Percent
Rentable
Percent
Ownership Square Feet Pre-leased(1)
100.0%
49.0%
100.0%
Total/Weighted Average . . . .
Multifamily
1221 Van Street . . . . . .
West Half III . . . . . . . .
West Half II . . . . . . . .
Atlantic Plumbing C—North
Atlantic Plumbing C—South
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Washington,
Washington,
Washington,
Washington,
Washington,
DC
DC
DC
DC
DC
Ballpark/Southeast
Ballpark/Southeast
Ballpark/Southeast
U Street/Shaw
U Street/Shaw
Total/Weighted Average . . . .
Total/Weighted Average
. . . . .
100.0%
94.2%
94.2%
100.0%
100.0%
Weighted
Schedule
Average
Pre-lease
Estimated
Rent Per Estimated
Estimated Incremental
Square Number of Construction Completion Investment(3)
Foot(2)
Units
Start Date
Date
(000s)
529,997
214,257
40,025
66.6%
56.7%
54.9%
$ 62.81
130.17
64.04
—
—
—
784,279
63.3%
$ 79.35
—
226,546
211,939
176,235
145,605
79,926
—
—
—
—
—
—
—
—
—
—
291
249
216
161
95
840,251
1,012
1,624,530
1,012
Q4 2014
Q1 2017
Q4 2015
Q2 2018
Q3 2019
Q2 2017
$156,851
71,006
15,901
$243,758
Q4
Q1
Q1
Q1
Q1
2015
2017
2017
2017
2017
Q2
Q1
Q1
Q4
Q4
2018
2020
2020
2019
2019
$ 48,150
71,446
100,099
63,907
36,178
Q1 2019
$563,538
$319,780
Q1 2016
Note: Table shown at 100 percent share.
(1)
Based on leases signed as of March 31, 2017.
(2)
Based on leases signed as of March 31, 2017 and is calculated as contractual monthly base rent before free rent, plus estimated tenant reimbursements for the
month in which the lease commences, multiplied by 12. Triple net leases are converted to a gross basis by adding estimated tenant reimbursements to
contractual monthly base rent. See ‘‘Contractual Free Rent’’ for detail on free rent.
(3)
Based on management’s estimates as of March 31, 2017 of all remaining acquisition costs, hard costs, soft costs, tenant improvements, leasing costs and other
similar costs to develop and stabilize the asset. Excludes any financing costs and ground rent expenses.
(4)
CEB Tower at Central Place is subject to a ground lease with an expiration date of June 2, 2102; we have an option to purchase the ground lease at a fixed
price.
Develop Our Significant Near-Term and Future Development Pipelines. We have significant
pipelines of concentrated opportunities for value creation through ground-up development, with the
goal of producing favorable risk-adjusted returns on our capital. We expect to be active in developing
these opportunities while maintaining prudent leverage levels in order to create value for JBG SMITH.
• Robust Near-Term Development Pipeline. In addition to the contribution anticipated from our
assets under construction, as of March 31, 2017, we had a pipeline of five high-quality
near-term development assets that we expect to provide substantial growth for our portfolio.
The near-term development pipeline complements the meaningful multifamily focus of our
assets under construction, with seven of the 13 assets in the combined pipeline being
multifamily. Our near-term development pipeline is comprised of approximately 559,000
square feet of wholly owned office space, 755 multifamily units (464 units at our share) and
152
over 65,000 square feet (6,500 square feet at our share) of retail in our other asset category,
over 99% of which is Metro-served. The majority of these projects have substantially
completed the entitlement process and are in a position to commence construction. In
general, given current market expectations, we estimate that we will commence construction
on near-term development multifamily assets within the 18 months following March 31, 2017,
while commencement of construction on near-term development office assets will more likely
depend on either pre-leasing or attractive submarket supply and demand dynamics. We
believe these projects provide significant potential for value creation.
Near-Term Development Asset
Location
Office
4747 Bethesda Avenue . . . . . . . . . . . . . Bethesda, MD
1900 N Street(1) . . . . . . . . . . . . . . . . . Washington, DC
Submarket
Bethesda CBD
CBD
Percent
Ownership
Estimated
Rentable
Square Feet
100.0%
100.0%
287,183
271,433
—
—
558,616
—
359,025
334,859
322
433
693,884
755
65,342
—
1,317,842
755
Total . . . . . . . . . . . . . . . . . . . . . . .
Multifamily
7900 Wisconsin Avenue(2) . . . . . . . . . . . Bethesda, MD
965 Florida Avenue . . . . . . . . . . . . . . . Washington, DC
Bethesda CBD
U Street/Shaw
50.0%
70.0%
Total . . . . . . . . . . . . . . . . . . . . . . .
Other
Stonebridge at Potomac Town Center—
Phase II . . . . . . . . . . . . . . . . . . . . Woodbridge, VA
Prince William County
Total . . . . . . . . . . . . . . . . . . . . . . . .
Estimated
Number of
Units
10.0%
Note: Table shown at 100 percent share.
(1)
A portion of 1900 N Street is subject to a ground lease with an expiration date of May 31, 2106.
(2)
In May 2017, we recapitalized this asset and decreased our ownership from 100.0 percent to 50.0 percent.
• Future Development Pipeline. We also have a future development pipeline consisting of
44 assets. We estimate our future development pipeline can support over 22.1 million square
feet of estimated potential development density (18.3 million square feet based on our share
of estimated potential development density), with over 98% of this potential development
density being Metro-served based on our share of estimated potential development density,
which will continue to support incremental development activity well into the future. We are
actively advancing our design plans and, where not already obtained, vesting entitlements on
our future development pipeline, which we believe affords us substantial optionality and
value creation potential. Our future development assets are concentrated in what we believe
are the most attractive submarkets and will have a meaningful multifamily focus, which we
believe will result over time in our portfolio becoming more balanced between office and
multifamily.
Our future development pipeline of 44 assets includes nine parcels attached to our existing
operating assets that would require a redevelopment of approximately 636,000 office and/or
retail square feet (421,000 square feet at our share) and 316 multifamily units (177 units at
our share) in order to access approximately 4.9 million square feet of total estimated
potential development density (3.3 million square feet at our share). The estimated potential
153
development densities and uses in the table below reflect our current business plans as of
March 31, 2017 and are subject to change based on market conditions.
At JBG SMITH Share
Number of
Assets
Submarket
Reston, VA . . . . . . . . . . . .
Pentagon City, VA . . . . . . .
Crystal City, VA . . . . . . . . .
NoMa, DC . . . . . . . . . . . .
Downtown Silver Spring, MD
Southwest, DC . . . . . . . . . .
Potomac Yard, VA . . . . . . .
Rosslyn, VA . . . . . . . . . . .
Alexandria, VA . . . . . . . . .
CBD, DC . . . . . . . . . . . . .
H Street/NoMa, DC . . . . . .
Rockville Pike Corridor, MD .
Clarendon/Courthouse, VA . .
Prince William County, VA . .
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Estimated Potential Development Density
Total
Office
Multifamily
Retail
Estimated
Commercial
Rentable Square
Feet/Multifamily
Units to
be Replaced(1)
.
.
.
.
.
.
.
.
.
.
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.
.
.
6
5
9
6
1
3
1
2
1
1
1
5
2
1
4,142,600
4,670,000
3,226,000
1,909,520
1,276,000
842,046
758,500
145,710
625,000
335,500
205,500
126,360
62,820
20,950
1,282,500
1,509,000
274,500
462,610
—
186,796
500,000
88,200
625,000
324,000
—
19,170
—
—
2,631,100
3,059,500
2,632,000
1,283,410
1,156,000
654,000
209,000
54,000
—
—
164,000
88,560
58,410
19,200
229,000
101,500
319,500
163,500
120,000
1,250
49,500
3,510
—
11,500
41,500
18,630
4,410
1,750
152,719 SF / 15 units
—
220,780 SF
—
162 units
—
—
22,203 SF
—
—
—
25,119 SF
—
—
Total . . . . . . . . . . . . . . . . . . . . . .
44
18,346,506
5,271,776
12,009,180
1,065,550
420,821 SF / 177 units
Retail
Estimated
Commercial
Rentable Square
Feet/Multifamily
Units to
be Replaced(1)
Number of
Assets
Total
Office
Multifamily
Virginia . . . . . . . . . . . . . . . . . . . . .
Washington, DC . . . . . . . . . . . . . . . .
Maryland . . . . . . . . . . . . . . . . . . . .
27
11
6
13,651,580
3,292,566
1,402,360
4,279,200
973,406
19,170
8,663,210
2,101,410
1,244,560
709,170
217,750
138,630
395,702 SF / 15 units
—
25,119 SF / 162 units
Total . . . . . . . . . . . . . . . . . . . . . .
44
18,346,506
5,271,776
12,009,180
1,065,550
420,821 SF / 177 units
Region
Note: See the ‘‘Presentation of Information’’ on page ii for disclosure regarding at-share metrics.
(1)
Represents office and/or retail rentable square feet and multifamily units that would have to be redeveloped in order
to access some of the estimated potential development density.
Redevelop and Reposition Our Assets. We intend to seek to increase occupancy and rents,
improve tenant quality and enhance cash flow and value by completing the redevelopment and
repositioning of a number of our assets, including the use of our Placemaking process. This approach is
facilitated by our extensive proprietary research platform and deep understanding of submarket
dynamics. The JBG SMITH management team believes there will be significant opportunities to apply
our Placemaking process across the portfolio.
In particular, we plan to use this Placemaking process, among other initiatives, in Crystal City
in order to create value over time. Crystal City’s attractive attributes of its urban-infill location with
close proximity to downtown Washington, DC, its access to Metro and other key transportation
infrastructure and strong surrounding demographics serve as an incredible foundation upon which to
build the mix of uses and amenities that today’s tenants demand. We believe that the application of our
Placemaking approach will allow us to increase Crystal City’s attractiveness to potential tenants and
create significant value for our shareholders. In addition to Crystal City, we also believe our
Placemaking process will benefit other submarkets, including the District of Columbia, Rosslyn and
Bethesda.
154
We evaluate our portfolio on an ongoing basis to identify value-creating redevelopment and
renovation opportunities, including the addition of amenities, unit renovations and building and
landscaping enhancements.
See ‘‘—Case Studies’’ beginning below.
Pursue Attractive Acquisition Opportunities. Since 2000, JBG has invested in more than
235 assets representing approximately $13.0 billion in gross asset value, including over 19.5 million
square feet of office, 14,750 multifamily units, over 4.0 million square feet of retail, 5,700 hotel rooms,
3,200 for-sale multifamily units and townhomes and 25.0 million square feet of estimated potential
future development density. Due to JBG’s high volume of market activity, we are well known in the
brokerage community and have deep relationships with the most active brokers and sellers in the
Washington, DC market. In addition, we have developed a reputation for fair dealing, performance and
creative deal-making, which makes us a preferred counterparty among market participants. We believe
that our longstanding market relationships, reputation and expertise will continue to provide us with
access to a pipeline of deals that are often compelling, off-market opportunities. We will continue to
pursue acquisition opportunities with a disciplined approach and will place an emphasis on well-located,
public transit-oriented assets in improving neighborhoods that have strong prospects for growth and
where we believe that we can increase value through increasing occupancy and rental rates,
re-marketing tenant space, enhancing public spaces, employing Placemaking strategies and improving
building management. See ‘‘—Case Studies’’ beginning below.
Case Studies
We believe the following case studies are examples of our strengths and strategies and support
why we believe that we can create value for our investors. The gross leveraged IRRs and equity
multiples referred to herein are not necessarily indicative of the future performance of JBG SMITH,
any asset in our portfolio or an investment in our common shares. In addition, some of these case
studies refer to realized investments that the JBG Funds sold prior to the combination and thus are not
part of our portfolio. There is no assurance that our management will be able to replicate the
performance achieved by the JBG Funds in these case studies.
77 H Street, NW, Washington, DC
Multifamily and retail asset demonstrating extensive market knowledge, longstanding relationships and
high-quality mixed-use portfolio
In September 2010, JBG entered into a joint venture to pursue a multi-phased development of
3.7 acres of vacant land consisting of two adjacent parcels located at 801 New Jersey Avenue, NW and
77 H Street, NW in the Capitol Hill submarket of Washington, DC. Our joint venture partner had
controlled the assets through a ground lease with the Washington, DC government since 1990, but the
parcels remained undeveloped. Under the terms of the ground lease, failure to commence construction
of the first phase of development by August 2013 would have constituted default. JBG was able to
leverage its existing relationships with ‘‘big box’’ retailers to advance lease discussions quickly and start
construction by February 2012 on what would eventually become the first ever urban-format Walmartanchored mixed-use development to be located in a central business district in North America.
JBG completed the first phase of the development, the 77 H Street, NW parcel, in December
2013. This building consists of 303 multifamily units and nearly 100,000 square feet of retail, including
the approximately 85,000 square feet Walmart. The property is located three quarters of a mile from
the U.S. Capitol Building, four blocks from Union Station (red line) and within walking distance to the
Gallery Place (red, green and yellow lines) and Judiciary Square (red line) Metro stations. Walmart
serves as the anchor tenant, which JBG believed was helpful in attracting other tenants, such as
Starbucks and Capital One, to the remaining retail space. Upon completion of construction in
December 2013, JBG sold this property for $127 million, generating a gross leveraged IRR and equity
multiple of 78.8% and 3.6x, respectively, for one of the JBG Funds.
155
Sky House, Washington, DC
Multifamily asset demonstrating redevelopment expertise and extensive market knowledge and longstanding
relationships
Sky House is a two-tower, 530-unit luxury apartment community located next to the Waterfront
Metro station (green line) in Southwest Washington, DC. The property is conveniently located one
block from a 27-acre mixed-use redevelopment known as The Wharf that is expected to comprise over
3 million square feet of multifamily, retail, office and hotel space upon completion. It also benefits
from its proximity to nearby Nationals Park, the home of the Washington Nationals baseball team. The
U.S. Capitol, a major federal employment center, is a half mile to the north, and the property is in
close proximity to the Capitol Riverfront neighborhood in Southeast, which houses approximately eight
million square feet of office space, including the Washington Navy Yard and the U.S. Department of
Transportation.
JBG’s investment in Sky House was the result of an off-market opportunity brought to it by a
joint-venture partner, which planned to renovate and reposition the two 1970s era, I.M. Pei-designed
office buildings into luxury multifamily units. We believe that JBG’s market knowledge and prior
experience in the Capitol Riverfront neighborhood made it an attractive investment partner. Further,
we believe that JBG was able to leverage our extensive research and previous experience in building
smaller, non-traditional units to execute this complicated redevelopment of a post-tension concrete
office building into multifamily apartment units with non-traditional dimensions.
The first of the two towers completed in 2014 was leased at rental rates and leasing velocity
exceeding JBG’s initial expectations, at an average pace of 33 units per month and an average rent of
$2,197 per unit per month or $3.24 per square foot per month for the market rate units (or $1,987 per
unit per month or $2.96 per square foot per month, including affordable units, which represent 20.0%
of the units). JBG believes that the strong leasing momentum was attributable to the project’s desirable
location, vast array of building amenities and distinctive unit features, including high ceiling heights and
unobstructed views of the Potomac River and the U.S. Capitol Building.
JBG sold the first tower following stabilization in June 2015 and the second tower at delivery
in January 2015 for a total of $171 million to an institutional investor, generating a gross leveraged
IRR and equity multiple of 21.5% and 1.9x, respectively, for one of the JBG Funds.
156
The Bartlett, Pentagon City, Arlington, VA
Multifamily asset demonstrating development and Placemaking expertise
The Bartlett is the largest new apartment project in the Washington, DC metropolitan area,
featuring 699 units atop a new urban Whole Foods Market at street level. Comprised of approximately
619,000 square feet, the LEED Silver, trophy multifamily asset is located at 520 12th Street South in
the heart of Pentagon City in Arlington, Virginia—surrounded by shops, restaurants, shopping and
Metro access.
Soaring 23 stories, The Bartlett is an iconic skyline maker in Pentagon City and features
best-in-class unit finishes and amenities including: a state-of-the-art fitness center, contemporary lobby
with direct access to Whole Foods Market and Commonwealth Joe coffee shop, a landscaped courtyard
with a fire pit and two separate dog parks, TV-lined social lounge area, pet grooming station, a
co-working style business center, and two expansive roof tops: one on the 16th floor adjacent to the
Loft, featuring a multi-purpose grilling and dining deck, and the other on the 23rd floor featuring a
pool and dramatic views of the Arlington and Washington D.C. skylines. The property features a
diverse mix of studios and one, two, and three bedroom residences offering modern kitchens with
granite and stainless steel, light-filled living spaces, and spa-quality baths. The Bartlett was carefully
designed to blend the authenticity of Pentagon City with the very best amenities and residence finishes,
meeting the demand of Arlington’s most discerning renters-by-choice.
The Bartlett is located on a 2.4 acre site in Pentagon City’s Metropolitan Park development, a
16-acre multifamily community just east of the Pentagon Centre shopping mall. The Bartlett comprises
the first two of our five phases of Metropolitan Park, where we can build a total of 2,102 units,
inclusive of The Bartlett. By joining two adjacent land parcels, Vornado created both space for Whole
Foods Market and the scale to deliver ‘‘a city within a city’’—with over 40,000 square feet of amenities.
The Bartlett paves the way for the remaining adjacent 1,403 units in three future phases.
Construction commenced in January 2014 and was completed in November 2016.
The Bartlett began pre-leasing in March 2016 and opened for occupancy in June 2016. The
convenient urban location, extensive amenities, and compelling design has driven a market-leading
lease-up pace with 604 units leased as of March 31, 2017.
In August 2016, The Bartlett was selected by Delta Associates’ 20th Annual Industry Awards
for Excellence in the category of Best Lease-Up Pace for a Northern Virginia Apartment Community
as well as Best Interior Design. In November 2016, The Bartlett was honored by NAIOP with Awards
of Excellence for Best Mixed Use Property and Best Project Marketing.
157
2101 L Street, Washington, DC
Office building renovation demonstrating redevelopment expertise and extensive market knowledge.
2101 L Street is a 10-story, approximately 380,000 square feet Class A corner office building in
Washington DC’s CBD redeveloped by Vornado / Charles E. Smith in late 2007. This highly successful
full building renovation included a new exterior curtainwall façade with floor-to-ceiling glass, a
contemporary lobby with first-class finishes, all-new cutting-edge building systems and first class
amenities including a rooftop terrace, private terrace, and state-of-the-art fitness center.
The renovated building features abundant natural light and landmark views of the city, and is
located near extensive local amenities in the CBD including acclaimed restaurants and upscale hotels.
It offers a large three-level underground parking garage totaling 93,404 gross square feet (GSF),
accommodating up to 305 cars.
Vornado / Charles E. Smith originally purchased the existing 370,000-square foot Class B
building in 2003 for $82 million ($218/square foot), seeing an opportunity to redevelop it after the full
building tenant, Dickstein Shapiro, vacated in July 2006. Renovation work began immediately following
Dickstein’s departure.
The Vornado / Charles E. Smith team determined the highest and best use of the building was
to complete a first-class, full building renovation while retaining the existing structure, slabs and
garage—essentially preserving the good ‘‘bones’’ of the building. This provided at least $100 to
$125 per square foot in savings over ground-up development, allowing Vornado / Charles E. Smith to
market a superior quality product in an exceptional location at $8 to $10 less in gross rent than
comparable assets.
Early evidence of the success of this strategy included pre-leasing 33% of the building to
international law firm Greenberg Traurig (115,000 square feet) and leading retailers Citibank and
Bruegger’s Café. The property opened for occupancy in December 2007 and was about 80% leased in
the first eight months. As of March 31, 2017, the asset was 98.7% leased to a diverse and prominent
tenant base, including Greenberg Traurig (115,000 square feet), U.S. Green Building Council
headquarters (55,000 square feet), RTKL (64,000 square feet), Cushman & Wakefield (59,000 square
feet) and Bright Horizon’s Child Care Center (14,000 square feet).
158
51 Louisiana Avenue, Washington, DC
Office asset demonstrating development expertise and extensive market knowledge and longstanding
relationships
In 2004, JBG acquired 51 Louisiana Avenue, an approximately 206,000 square feet office
building located in the Capitol Hill submarket of Washington, DC. The property is immediately
adjacent to the grounds of the U.S. Capitol Building, one block from Constitution Avenue and features
unobstructed views of the U.S. Capitol Building. Built in the 1930s and renovated in 1999, 51 Louisiana
has a limestone façade, a two-story marble lobby and 15-foot ceiling heights on every floor. JBG saw an
opportunity to take advantage of unused density on the site by developing a second building that could
be substantially pre-leased during construction to the existing law firm tenant. In order to extract that
density, the property required regulatory approval from the Board of Zoning Adjustment, the Historical
Preservation Review Board, the Architect of the Capitol, and the U.S. Commission of Fine Arts, an
independent federal agency prior to commencement of construction. The 15-foot high ceilings in the
existing structure and the need for the nine foot floors of the new structure to meet with those in the
existing structure presented a challenge in creating expansion space for the existing law firm tenant,
which wanted to create a ‘‘campus,’’ rather than two separate buildings. JBG navigated these
entitlement and design challenges to obtain the necessary regulatory approvals and ultimately
pre-leased a significant amount of the space to the existing law firm tenant that was seeking additional
space prior to commencing construction on the new 255,000 square feet office building.
The new 10-story building, 300 New Jersey Avenue, was completed in 2009 and was the first
office building in Washington, DC designed by Lord Richard Rogers, a Pritzker Prize-winning architect
experienced in working with new additions on historic structures. The project included a 10-story glass
atrium with glass bridges creating connectivity between the two buildings, which totaled 461,000 square
feet. JBG sold this investment in April 2008 for $375.0 million, or $813 per square foot, a record high
at the time, generating a gross leveraged IRR and equity multiple of 32.8% and 2.7x, respectively, for
one of the JBG Funds.
159
Waterview, Arlington, VA
Office asset demonstrating construction expertise, efficient capital allocation and Placemaking
In 2007, JBG developed Waterview, a 1.3 million square foot, mixed-use project located in
Arlington, Virginia, a close-in suburb of Washington, DC in the Rosslyn submarket. Designed by award
winning architects Pei Cobb Freed & Partners, Waterview consists of two towers, includes a 24-story,
approximately 625,000 square feet office building in the first tower and a second tower housing a
154-room full-service hotel on the first 12 floors and 133 luxury for-sale condominium units on the top
12 floors.
The mixed-use project required an extensive regulatory approval process and land assemblage
effort that entailed the purchase of three future development parcels and demolition of several
buildings over the course of several years. Prior to commencement of development, JBG recapitalized
the investment and mitigated its exposure by entering into a joint venture with two partners in which
JBG retained additional upside through a promoted interest. Also, prior to commencement of
development, JBG entered into a 20-year lease with a publicly traded consulting firm tenant for 100%
of the office building portion of the project. In addition, JBG entered into a contract with Kimpton
Hotel & Restaurants to manage the hotel, thereby incorporating a luxury brand into the project, which
JBG believed would encourage interest in the condominium portion of the project. JBG sold the office
building in June 2007 for $412 million, or $650 per square foot, a record per square foot price for an
office building at the time for the Northern Virginia market. Settlement of the condominiums
commenced in February 2007 and was substantially completed by December 2010 with an average sales
price of $792 per square foot, with some units achieving prices in excess of $1,000 per square foot, on
par with top condo developments in the region. Additionally, JBG sold the hotel portion of the project
in February 2012 for $47.2 million, or $307,000 per room. On the overall mixed-use project, JBG
generated a gross leveraged IRR and equity multiple of 18.3% and 3.4x, respectively, for one of the
JBG Funds and JBG generated a gross leveraged IRR and equity multiple of 53.8% and 3.9x,
respectively, for another of the JBG Funds.
Waterview was one of numerous investments JBG has made in the Rosslyn submarket, where
JBG has developed over three million square feet and where our Placemaking approach has
contributed to the revitalization of the area since the late 1990s. JBG identified Rosslyn as an attractive
market for Placemaking in part due to its accessible location near two major commuter arteries
(I-66 and US-50) and proximity to Ronald Reagan National Airport (four miles), the Rosslyn Metro
station and the Potomac River, with many mid/high-rise buildings providing unobstructed views of the
Potomac River, Georgetown and the Washington, DC skyline. In addition to Waterview, JBG developed
1801 N. Lynn Street, an over 350,000 square feet office tower that was 100% leased to GSA prior to
completion and Sedona Slate, a two-building multifamily property comprised of 474 rental units and
approximately 10,000 square feet of retail.
160
CEB Tower at Central Place, Arlington, VA
Office asset demonstrating construction opportunity, efficient capital allocation, continued Placemaking and
extensive market knowledge and longstanding relationships
CEB Tower at Central Place is an approximately 530,000 square feet office building currently
under construction in the core submarket of Rosslyn, Arlington County, Virginia. CEB Tower at
Central Place is expected to be one of the tallest buildings in the Washington, DC metropolitan area
and will feature an observation deck open to the public that will offer unobstructed views of the
National Mall and downtown Washington, DC. Prior to commencing construction, JBG executed a
15-year pre-lease with the publicly traded, global consulting firm, CEB, Inc. (‘‘CEB’’), for approximately
350,000 square feet. The building is planned to serve as CEB’s global corporate headquarters and home
office for more than 2,000 Washington, DC metropolitan area employees. JBG believes that it was able
to secure the CEB lease despite a competitive process because of our reputation for developing
high-quality office buildings, including CEB’s previous headquarters building. CEB will occupy the
building’s top two office floors and the bottom 13 office floors, leaving floors 21–28, each of which
offers views of the Washington, DC skyline, available for lease to other tenants. CEB Tower at Central
Place features nine-foot plus ceiling heights, a floor-to-ceiling glass curtain wall and highly efficient
floor plates that are designed to maximize daylight and allow for tenant layouts that are more efficient
than conventionally designed buildings. In addition, because it was designed with LEED Gold building
systems, CEB Tower at Central Place offers tenants significant savings on energy usage and operating
expenses relative to buildings that lack such systems.
CEB Tower at Central Place is located directly adjacent to the Rosslyn Metro station entrance
and is part of our Placemaking strategy in the Rosslyn submarket and, specifically, within JBG’s Central
Place assemblage, which is also contemplated to include Central Place Residential, a 377-unit luxury
apartment tower currently under construction. Central Place Residential is one of the JBG Excluded
Assets. When complete, Central Place will deliver a variety of amenities to Rosslyn, including
approximately 12,000 square feet of new retail space in CEB Tower at Central Place, approximately
30,000 square feet of new retail space in Central Place Residential, a new public plaza and three high
speed elevators to provide direct access to the Rosslyn Metro station below. We believe that these
amenities will result in a meaningful benefit to Rosslyn and drive further value to our assets in that
submarket. Additionally, with a joint venture partner, JBG SMITH controls two future development
assets in the submarket, Rosslyn Gateway (North and South), totaling approximately 810,000 square
feet of estimated potential development density, which will include office, hotel, retail and multifamily
uses.
In 2001, JBG began acquiring control of future development parcels in the city block that
covers the land area for CEB Tower at Central Place and has spent more than a decade assembling
and designing both CEB Tower at Central Place and Central Place Residences and navigating the
regulatory approval processes. During this period, JBG maintained control of the site and carried it
through the real estate market cycle through strategic recapitalizations. In 2014, JBG acquired the
majority interest for CEB Tower at Central Place at an attractive basis through a structured deal that
permitted it to defer closing on the acquisition until after it had executed the CEB lease, secured its
construction loan and executed a guaranteed maximum price construction contract. This deal structure
provided JBG with significant downside protection and allowed it to eliminate key deal risks before
closing.
Substantial completion of CEB Tower at Central Place currently is scheduled for early 2018, by
which time we expect CEB will have completed the build out of its tenant space for occupancy and
rent commencement to begin.
161
RTC–West, Reston, Virginia
Office and retail asset demonstrating redevelopment expertise, Placemaking and lease-up opportunity
In November 2012, JBG acquired RTC–West, an approximately 469,000 square feet, three
building asset located in Reston, Virginia, immediately adjacent to Reston Town Center and a planned
Metro station (silver line). JBG’s investment rationale was that renovations, repositioning, the
introduction of retail amenities and proactive asset management and leasing could result in this asset
having comparable performance metrics to those of adjacent buildings in the Reston Town Center,
which had approximately 95% occupancy, compared to 76% for RTC–West and base rents that were
nearly $15 per square foot higher. Immediately upon acquisition, JBG launched an effort to rebrand
the property from Reston Executive Center to RTC–West, reinforcing to the market the property’s
proximity to Reston Town Center and providing a brand platform for the future addition of multifamily
and retail space. Simultaneously, JBG commenced a lobby renovation program, which included an
investment of $6.4 million to renovate the main lobby of each of the three buildings with new wall
finishes, flooring, column coverings, ceilings and light fixtures. Additionally, JBG upgraded the elevator
cab interiors and added a new approximately 3,000 square foot fitness center with upgraded locker
rooms to one building. Between acquisition in November 2012 and March 2015, JBG executed 24 new
leases, contributing to a 9.2% increase in leased space, and achieved 23% rent growth to approximately
$38.00 per square foot.
Consistent with its Placemaking approach, JBG secured a special exception permitting the
addition of approximately 20,500 square feet of retail and conversion of approximately 19,500 square
feet of first floor office into retail space, which we refer to as RTC–West Retail, an under-construction
retail asset. Concurrent with the construction of the retail space, JBG will add public spaces, including
parks, enhanced sidewalks and outdoor dining. The project commenced construction in the fourth
quarter of 2015 and was 54.9% pre-leased as of March 31, 2017. JBG has carefully cultivated the
mixture of retail space with a specific focus on dining to further encourage leasing activity and rent
growth for the office buildings and to enhance the environment for the future development on site.
Finally, JBG was engaged in the recently-completed Reston Transit Station Areas
Comprehensive Land Plan Recommendation (the ‘‘Reston Comprehensive Land Plan’’), a planning
study prepared by Fairfax County, Virginia to help guide future development in Reston and adjoining
areas located along the Dulles Airport Access and Toll Road, including the Reston Town Center, as
well as the areas along the Dulles Toll Road adjacent to one existing and two planned Metro stations.
In accordance with the Reston Comprehensive Land Plan, the overall density recommendation for
RTC—West is 3.0-4.0 FAR, which, if granted, would permit up to 2.4 million square feet of estimated
potential development density. JBG submitted a zoning application in June of 2016, requesting
regulatory approval for three new office buildings and two new multifamily buildings totaling
approximately 1.4 million square feet of new development. The application is currently being reviewed
by Fairfax County staff.
162
WestEnd25, Washington, DC
Multifamily asset demonstrating redevelopment expertise and extensive market knowledge and longstanding
relationships.
WestEnd25 is a 10-story, 283-unit, luxury apartment building developed by Vornado /
Charles E. Smith in the heart of DC’s West End neighborhood.
In 2007, the site was acquired in this high barrier-to-entry market through an asset exchange/
purchase with the Bureau of National Affairs (‘‘BNA’’), now Bloomberg BDA. Vornado / Charles E.
Smith successfully gained control of the three-office West End complex by arranging to relocate BNA
to a fully renovated building in Crystal City, 1801 South Bell Street, ultimately deeding the renovated
1801 South Bell Street office asset (and additional funds) to BNA in exchange for the three building
complex owned and occupied by BNA in DC. Vornado / Charles E. Smith continued to operate one of
the three buildings (1227 25th Street NW) as office, and it was eventually sold in 2011 for
$47.0 million.
In 2008, the other two buildings, 1129 and 1231 25th Street NW, were redeveloped into
WestEnd25. Vornado / Charles E. Smith successfully completed a planned unit development
entitlement process to add four floors to the building and increase the size to approximately 280,000
square feet of multifamily, atop of the existing 250 space parking garage. The transaction required
complex staging and execution expertise to renovate 1801 South Bell Street—previously vacated by the
EPA—to BNA’s requirements, facilitate their move to Crystal City, and execute on the conversion of
1229-1231 25th Street NW to a luxury multifamily building. The garage and concrete structure of the
existing six-story building were retained, and the balance of the building and skin were demolished. The
two towers were connected and four additional floors were added to the building to increase density
and create a significant number of units and rooftop amenity space with breathtaking views of Rock
Creek Park, Georgetown, and the National Cathedral. The rooftop amenities added significant value to
all units in the building.
WestEnd25 was the first multifamily rental development to achieve LEED Gold in the Greater
Washington region. From the beginning, the vision for WestEnd25 was focused on setting a new bar for
imaginative, sustainable multifamily development—and took the notion of ‘‘recycling’’ to a whole new
level. The building was created by reusing and ‘‘repurposing’’ two adjacent six-story office buildings to
create a new 10-story, 283-unit, luxury rental multifamily building. By ‘‘recycling’’ the skeletal
superstructures of the building, 19,000 tons of waste never went to the landfill. And, nearly all of the
waste (94%) that was incurred (from removal of existing façades, carpeting, etc.) was recycled.
Approximately 30% of the construction materials used at the site contained recycled content and were
sourced from regional or local suppliers.
The property opened for occupancy in August of 2009 and was stabilized at 95% occupancy in
April of 2011. There were 235 units absorbed over the first 12 months of lease-up at a healthy pace of
20 units per month.
163
Atlantic Plumbing, Washington, DC
Multifamily and Retail assets demonstrating development and Placemaking expertise.
In 2010, JBG acquired a senior mezzanine note secured by the ownership interests in the entity
that owned the Atlantic Plumbing future development parcels, three non-contiguous sites located near
the intersection of 8th and V Streets, NW at the east end of the U Street Corridor in the Shaw
submarket of Washington, DC. At the time of acquisition, the sites were approved for over 600,000
square feet of multifamily and retail development. However, the equity owner had defaulted on the
note, and JBG was able to acquire the $8.4 million loan for $50,000, a 99.5% discount to face value.
Since the note was subordinate to a senior mortgage, JBG negotiated a loan restructuring with the
senior lender while working to foreclose the ownership of the entity that owned the assets. During an
extended negotiation with the special servicer of the loan, the multifamily market began to improve and
the equity owner decided it could accept our restructured senior loan and repay the defaulted
mezzanine loan at the face value plus default costs and accrued interest. Working creatively to retain
control of the opportunity, JBG decided to work with the equity owner, Walton Street, to negotiate a
joint venture to develop the property, with JBG receiving equity credit for the full face value of the
loan plus accrued interest payments.
Located in the up and coming Shaw submarket of DC, just two blocks from the U Street/
Cardozo Metro Station (green line) and one block from Howard University and the 9:30 Club, the
assets were initially improved with vacant industrial buildings with a plan to be developed into
multifamily uses above ground floor retail. While other potential development sites in the submarket
are subject to substantial near-term development risks and time delay through rezoning and approval
processes, we were able to move right into the design phase upon closing of the joint venture. The
scale of our approved density on these sites, in conjunction with two additional sites we controlled one
block away on Florida Avenue, afforded us the opportunity to plan a unique project for the submarket,
differentiating each building through distinctive architectural design, unparalleled amenity spaces, and
coordinated Placemaking retail, where we could bring retailers that had limited or no exposure to the
DC market.
JBG hired Morris Adjmi out of New York to design the Atlantic Plumbing buildings, bringing
distinct design to the projects that have since become iconic in the District. The Atlantic Plumbing
project is comprised of three individual parcels which we refer to as Parcel A (rental/retail), Parcel B
(condo/retail), and Parcel C (multifamily/retail). Atlantic Plumbing Parcel A was developed as a
310-unit apartment building with over 19,000 square feet of retail anchored by a Landmark Theater, as
well as several smaller studio spaces and opened for leasing at the end of 2015. Atlantic Plumbing
parcel B was developed as a 62-unit condominium with approximately 5,000 square feet of restaurant
space and opened for sale in 2015. As of March 31, 2017 the building was nearly sold out at an average
price of just under $800 per square foot.
Phase 3, Atlantic Plumbing C, is planned to be an approximately 226,000 square feet
development split between two buildings, a north and south tower, separated by a walking street lined
with approximately 19,500 square feet of retail and multifamily on top.
164
U Street / Shaw, Washington, DC
Multifamily and retail assets demonstrating Placemaking and extensive market knowledge.
JBG helped transform a neighborhood through concentrated Placemaking efforts in four
adjacent projects: Atlantic Plumbing, Florida Avenue, North End Retail, and 965 Florida Avenue.
The Atlantic Plumbing project is comprised of three individual parcels which we refer to as
Parcel A (rental/retail), Parcel B (condo/retail), and Parcel C (multifamily/retail). The entire project is
built on top of and takes its name from a defunct plumbing supply warehouse complex adjacent to the
world-renowned ‘‘9:30 Club’’ music venue in Shaw. Altogether, the projects will boast over 600 units of
multifamily at full build-out along with more than 43,000 square feet of retail spread across three
parcels. Directly to the south of Atlantic Plumbing, JBG also developed two parcels along Florida
Avenue which are home to the Shay and the Hatton multifamily towers with 245 rental units and over
27,000 square feet of retail, which we refer to as North End Retail. To the north of the Atlantic
Plumbing and Florida Avenue sites, JBG is a joint-venture partner with MRP Realty on 965 Florida
Avenue—a mixed-use development site with the potential for over 46,000 square feet of retail below a
433-unit multifamily building that is currently in design.
These sites taken as a whole represent the next step in JBG’s Placemaking process. The core of
JBG’s thesis was that multifamily demand was moving eastward from 14th Street in search of lower
rents along with superior retail and neighborhood amenities. Not only were our Shaw sites in the path
of this growth, but they were also Metro-served, adjacent to a university, and only three Metro stops
from the major employment node of the East End. JBG addressed the challenge of an ‘‘edge’’ location
by first activating the site prior to development. The team brought an open-air artisanal market led by
the team behind the prominent ‘‘Brooklyn Flea’’ in Brooklyn’s Williamsburg neighborhood to the site
of the Atlantic Plumbing buildings. This created a daytime draw alongside the 9:30 Club’s nighttime
presence and helped to legitimize the neighborhood prior to construction.
Through market research, the team sought to differentiate the multifamily and retail product
through both design and a move away from the primarily food-focused retail that had taken hold along
14th Street and U Street. The team sought to celebrate the warehouse nature of the area and designed
assets that would accent the neighborhood’s authenticity designed with smaller, more efficient units for
younger buyers and renters. These units offered relatively low absolute rent checks in exchange for high
design and an amenitized location all while generating high per square foot rents for JBG. On the
ground floor, Landmark Theatres was signed as an entertainment anchor complementary to the 9:30
Club, and was accompanied by in-line retail focused on a high-quality street food theme. JBG’s leasing
team also worked with a joint venture partner on 965 Florida Avenue to sign a lease with Whole Foods
to be the grocery anchor for this new neighborhood.
With entertainment and dining largely covered by Atlantic Plumbing and grocery by 965
Florida Avenue, the merchandizing for North End Retail was shifted to focus on the underrepresented
soft-goods category. We decided to position this project differently from locations like Georgetown or
the East End, which were more traditional ‘‘high streets,’’ and focus instead on independent fashion.
Creating a fashion-focused environment would demand subsidies, but the potential for above-market
restaurant rents and differentiation for adjacent multifamily in the face of a large pipeline all
outweighed subsidy concerns and suggested the potential for long-term growth and outsized starting
rents on apartments. We secured tenants such as Warby Parker, Chrome, Aesop, Bonobos and Read
Wall. The 27,380 square feet of retail space opened at more than 90% leased, was 96.2% leased as of
March 31, 2017 and has been the recipient of very strong demand among retailers—most of whom are
opening their first DC stores in this project.
The effort carried out by JBG’s Placemaking team has helped to differentiate all these assets,
even in a crowded marketplace. Parcel B of Atlantic Plumbing has broken neighborhood records,
165
generating an average sale price of just under $800 per square foot on units sold to date. This would
not have been possible in this location without the careful amenitization and curation of the retail and
the creation of unique public space that was carried out by JBG’s Placemaking team. The Parcel A
multifamily, which is wrapping up its first year of leasing, has shown rents in excess of $4.00 per square
foot—well above market—and the Florida Avenue multifamily towers, now sold, started lease-up well
above prevailing market rents in Shaw.
Our Assets
The tables below provide information about each of our office, multifamily, other and future
development portfolios as of March 31, 2017. In addition, many of our future development parcels are
adjacent to or an integrated component of operating office, multifamily or other assets in our portfolio.
Furthermore, a significant number of our assets included in the tables below will be held through joint
ventures with third parties. The tables below indicate our percentage ownership as well as our
preliminary conclusion as to whether we expect to consolidate or not consolidate the asset in our future
financial statements. For more information about our joint ventures see ‘‘—Our Joint Venture
Arrangements.’’
166
Office Assets
Asset List as of March 31, 2017
Subject to
Ground
Lease—
Expiration
Date
(1)
Office Asset
167
Universal Buildings . . . . . .
Courthouse Plaza 1 and 2 . . .
1550 Crystal Drive . . . . . . .
2345 Crystal Drive . . . . . . .
2121 Crystal Drive . . . . . . .
RTC—West . . . . . . . . . .
2231 Crystal Drive . . . . . . .
2011 Crystal Drive . . . . . . .
Commerce Executive . . . . .
2451 Crystal Drive . . . . . . .
1235 S. Clark Street . . . . . .
2101 L Street . . . . . . . . .
241 18th Street S. . . . . . . .
251 18th Street S. . . . . . . .
1215 S. Clark Street . . . . . .
201 12th Street S. . . . . . . .
800 North Glebe Road . . . . .
1225 S. Clark Street . . . . . .
2200 Crystal Drive . . . . . . .
1901 South Bell Street . . . . .
7200 Wisconsin Avenue . . . .
2100 Crystal Drive . . . . . . .
Bowen Building . . . . . . . .
1800 South Bell Street . . . . .
*One Democracy Plaza
. . . .
1730 M Street . . . . . . . . .
200 12th Street S. . . . . . . .
2001 Jefferson Davis Highway .
1233 20th Street . . . . . . . .
Summit II . . . . . . . . . . .
Summit I . . . . . . . . . . .
Executive Tower . . . . . . . .
1600 K Street . . . . . . . . .
Crystal City Shops at 2100 . . .
Wiehle Avenue Office Building(5)
1831 Wiehle Avenue . . . . . .
Crystal Drive Retail . . . . . .
L’Enfant Plaza Office—East . .
L’Enfant Plaza Office—North .
L’Enfant Plaza Retail . . . . .
The Warner . . . . . . . . . .
Investment Building . . . . . .
Pickett Industrial Park . . . . .
Rosslyn Gateway—North . . . .
Rosslyn Gateway—South . . . .
The Foundry . . . . . . . . .
1101 17th Street . . . . . . . .
NoBe II Office . . . . . . . .
11333 Woodglen Drive . . . . .
Total/Weighted Average
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1/19/2062
11/17/2084
4/30/2061
6/30/2018
11/23/2064
City
Submarket
Washington, DC
Arlington, VA
Arlington, VA
Arlington, VA
Arlington, VA
Reston, VA
Arlington, VA
Arlington, VA
Reston, VA
Arlington, VA
Arlington, VA
Washington, DC
Arlington, VA
Arlington, VA
Arlington, VA
Arlington, VA
Arlington, VA
Arlington, VA
Arlington, VA
Arlington, VA
Bethesda, MD
Arlington, VA
Washington, DC
Arlington, VA
Bethesda, MD
Washington, DC
Arlington, VA
Arlington, VA
Washington, DC
Reston, VA
Reston, VA
Washington, DC
Washington, DC
Arlington, VA
Reston, VA
Reston, VA
Arlington, VA
Washington, DC
Washington, DC
Washington, DC
Washington, DC
Washington, DC
Alexandria, VA
Arlington, VA
Arlington, VA
Washington, DC
Washington, DC
Rockville, MD
Rockville, MD
Uptown
Clarendon/Courthouse
Crystal City
Crystal City
Crystal City
Reston
Crystal City
Crystal City
Reston
Crystal City
Crystal City
CBD
Crystal City
Crystal City
Crystal City
Crystal City
Ballston
Crystal City
Crystal City
Crystal City
Bethesda CBD
Crystal City
East End
Crystal City
Bethesda-Rock Spring
CBD
Crystal City
Crystal City
CBD
Reston
Reston
East End
CBD
Crystal City
Reston
Reston
Crystal City
Southwest
Southwest
Southwest
East End
East End
Eisenhower Avenue
Rosslyn
Rosslyn
Georgetown
CBD
Rockville Pike Corridor
Rockville Pike Corridor
Percent
Ownership
Consolidated /
Unconsolidated
Year Built /
Renovated
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
49.0%
49.0%
49.0%
55.0%
5.0%
10.0%
18.0%
18.0%
9.9%
55.0%
18.0%
18.0%
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Unconsolidated
Unconsolidated
Unconsolidated
Unconsolidated
Unconsolidated
Unconsolidated
Unconsolidated
Unconsolidated
Unconsolidated
Unconsolidated
Unconsolidated
Unconsolidated
1959 / 1990
1989 / 2013
1980 / 2001
1988 / N/A
1985 / 2006
1988 / 2014
1987 / 2009
1984 / 2006
1987 / 2015
1990 / N/A
1981 / 2007
1975 / 2007
1977 / 2013
1975 / 2013
1983 / 2002
1987 / N/A
2012 / N/A
1982 / 2013
1968 / 2006
1968 / 2008
1986 / 2015
1968 / 2006
1922 / 2004
1969 / 2007
1987 / 2013
1964 / 1998
1985 / 2013
1967 / N/A
1984 / 2003
1986 / 2012
1987 / 2012
2001 / 2016
1950 / 2000
1968 / 2006
1984 / N/A
1983 / N/A
2003 / N/A
1972 / 2012
1969 / 2014
1968 / 2014
1924 / 2012
1924 / 2001
1973 / N/A
1996 / 2014
1961 / N/A
1973 / 2017
1964 / 1999
1965 / 2005
2004 / N/A
Total
Rentable
Square Feet
Office
Rentable
Square Feet
Retail
Rentable
Square Feet
Percent
Leased
Office
Percent
Occupied
Retail
Percent
Occupied
Annualized
Rent(2)
($000s)
Office
Annualized
Rent Per
Square Foot(3)
Retail
Annualized
Rent Per
Square Foot(4)
686,278
638,910
508,290
507,327
505,912
468,555
465,383
444,664
407,581
402,172
383,994
380,375
355,690
350,459
336,903
333,838
305,039
283,214
282,920
276,954
272,602
249,281
231,390
220,780
214,019
205,304
202,736
161,078
154,271
144,830
145,768
129,683
85,081
79,755
77,528
75,191
56,965
438,613
305,157
148,721
593,153
401,520
246,145
144,838
105,723
232,745
215,720
136,819
63,875
595,203
581,717
461,272
503,121
505,507
465,652
414,423
437,902
391,321
390,482
335,648
349,055
327,233
299,895
334,290
321,625
278,792
270,364
282,920
275,030
255,339
249,281
231,390
196,301
211,881
197,286
202,736
161,078
151,466
143,358
145,768
125,446
72,450
1,510
77,528
75,191
—
438,613
285,679
45,949
536,020
383,380
246,145
131,288
98,139
222,990
205,962
121,587
55,302
91,075
57,193
47,018
4,206
405
2,903
50,960
6,762
16,260
11,690
48,346
31,320
28,457
50,564
2,613
12,213
26,247
12,850
—
1,924
17,263
—
—
24,479
2,138
8,018
—
—
2,805
1,472
—
4,237
12,631
78,245
—
—
56,965
—
19,478
102,772
57,133
18,140
—
13,550
7,584
9,755
9,758
15,232
8,573
97.8%
93.4%
78.1%
93.0%
95.5%
88.0%
87.4%
80.5%
90.0%
79.1%
83.6%
98.7%
76.2%
99.5%
99.8%
95.3%
99.5%
44.8%
45.6%
100.0%
91.3%
100.0%
84.6%
41.2%
98.4%
91.3%
83.1%
53.3%
84.6%
95.5%
100.0%
78.5%
94.0%
94.4%
59.0%
78.0%
100.0%
88.2%
85.3%
77.5%
99.5%
91.3%
100.0%
94.3%
85.7%
85.0%
97.3%
21.6%
92.6%
98.9%
92.8%
80.4%
93.4%
95.6%
87.2%
85.8%
80.6%
89.3%
78.4%
81.2%
99.0%
63.6%
100.0%
99.8%
96.2%
77.8%
42.2%
45.6%
100.0%
91.8%
100.0%
84.5%
33.7%
98.9%
90.9%
83.1%
51.9%
81.1%
95.5%
100.0%
70.0%
92.7%
—
60.5%
79.4%
—
86.5%
81.6%
100.0%
95.7%
91.1%
100.0%
93.9%
90.0%
74.6%
95.3%
13.1%
91.4%
99.6%
100.0%
35.2%
100.0%
—
—
100.0%
100.0%
95.2%
100.0%
100.0%
100.0%
89.9%
100.0%
100.0%
100.0%
100.0%
100.0%
—
100.0%
79.9%
—
—
100.0%
100.0%
100.0%
—
—
—
100.0%
—
52.6%
98.1%
94.6%
—
—
100.0%
—
100.0%
62.0%
96.1%
100.1%
—
100.0%
40.4%
70.3%
100.0%
52.6%
100.0%
$ 31,232
26,963
15,705
21,456
23,251
14,623
16,858
15,597
12,533
12,279
11,869
25,309
8,310
13,397
10,757
11,424
12,325
4,527
4,924
11,146
11,774
10,052
13,778
3,475
6,830
8,541
7,202
2,757
6,042
4,534
3,498
7,165
4,037
1,799
1,174
1,689
2,934
16,451
11,238
4,822
39,055
24,959
3,812
5,443
2,687
9,085
10,196
685
2,223
$46.98
46.71
40.87
45.61
48.11
36.18
42.37
43.56
34.94
39.12
40.35
68.33
35.75
39.15
32.00
35.91
51.53
37.60
38.14
40.51
48.43
40.32
70.72
49.49
32.43
45.54
42.74
33.24
49.60
33.08
23.99
80.05
49.38
—
25.72
28.78
—
47.57
47.32
35.99
73.21
68.70
15.49
41.50
29.81
53.38
49.47
28.43
35.01
$50.37
33.31
53.68
37.70
—
—
35.12
51.81
27.45
31.67
17.98
58.48
35.36
35.06
31.47
36.44
45.97
18.90
—
2.14
43.66
—
—
8.29
31.42
48.05
—
—
—
4.08
—
86.57
65.40
24.08
—
—
51.51
—
22.36
65.02
28.55
72.27
—
25.50
45.53
38.16
66.09
30.56
52.83
14,063,749
13,090,515
973,234
87.1%
85.4%
89.1%
$532,422
$45.11
$39.63
168
—
Total . . . . . . . . . . . . . . . . . .
100.0%
100.0%
Consolidated
Consolidated
12,075,423
674,998
558,616
558,616
11,243,885
623,231
539,951
539,951
281,020
258,931
Represents annualized retail rent divided by occupied retail square feet. Occupied retail square footage may differ from leased retail square footage because leased retail square footage includes leases that have been signed for space within the asset, but that have
not yet commenced.
We have an option to purchase the ground lease at a fixed price.
Refers to assets that delivered within the 12 months ended March 31, 2017.
4749 Bethesda Avenue Retail delivered in the fourth quarter of 2016 and has a signed but not yet commenced lease for 100% of the space.
(5)
(6)
(7)
$38.36
$39.63
—
Retail
Annualized
Rent Per
Square Foot(3)(5)
(4)
$44.41
$45.11
—
Office
Annualized
Rent Per
Square Foot(3)(4)
Represents annualized office rent divided by occupied office square feet. Occupied office square footage may differ from leased office square footage because leased office square footage includes leases that have been signed for space within the asset, but that
have not yet commenced.
$450,396
$533,521
1,099
Annualized
Rent(2)(3)
($000s)
(3)
71.9%
87.8%
—
Retail
Percent
Occupied
In-place monthly base rent before free rent, plus tenant reimbursements as of March 31, 2017, multiplied by 12. Includes retail and storage rent. Triple net leases are converted to a gross basis by adding tenant reimbursements to monthly base rent. See
‘‘Contractual Free Rent’’ for detail on free rent. Excludes signed but not yet commenced leases.
84.4%
85.4%
—
Office
Percent
Occupied
Interests in six commercial buildings held through a joint venture with Wealth Capital Management are not reflected in the table. See ‘‘—Joint Ventures—Wealth Capital Management’’ for more detail.
87.0%
64.3%
85.8%
63.3%
66.6%
56.7%
54.9%
87.1%
100.0%
Percent
Leased
(2)
831,539
51,767
18,665
18,665
6,163
12,502
1,038,634
51,767
11,742
—
40,025
986,867
13,633
Retail
Rentable
Square Feet
(1)
Note: Table shown at 100 percent share except where noted as JBG SMITH share. See the ‘‘Presentation of Information’’ on page ii for disclosure regarding at-share metrics.
Totals at JBG SMITH Share
Operating Assets . . . . . . . . . . . . .
Under Construction Assets . . . . . . . . .
Near-Term Development Assets . . . . . . .
*Not Metro Served
Bethesda CBD
CBD
287,183
271,433
Bethesda, MD
Washington, DC
Near-Term Development
4747 Bethesda Avenue . . . . . . . . . . .
1900 N Street . . . . . . . . . . . . . . .
13,823,027
13,090,515
732,512
784,279
14,861,661
Consolidated
Unconsolidated
Consolidated
. . . . . . . . .
Total/Weighted Average
100.0%
49.0%
100.0%
13,633
Total/Weighted Average . . . . . . . . . . .
Rosslyn
Southwest
Reston
2016 / 2016
Office
Rentable
Square Feet
518,255
214,257
—
Arlington, VA
Washington, DC
Reston, VA
Consolidated
Total
Rentable
Square Feet
529,997
214,257
40,025
6/2/2102
100.0%
Year Built /
Renovated
Under Construction
CEB Tower at Central Place(5) . . . . . . .
L’Enfant Plaza Office—Southeast . . . . . .
RTC—West Retail . . . . . . . . . . . . .
Bethesda CBD
Submarket
Consolidated /
Unconsolidated
14,077,382
Bethesda, MD
City
Percent
Ownership
Total/Weighted Average . . . . . . . . . . .
Recently Delivered(6)
4749 Bethesda Avenue Retail(7) . . . . . . .
Office Asset
(1)
Subject to
Ground
Lease—
Expiration
Date
Multifamily Assets
Asset List as of March 31, 2017
Subject to
Ground
Lease—
Expiration
Date
Multifamily Asset
169
RiverHouse Apartments .
Falkland Chase—South &
Falkland Chase—North .
Fort Totten Square(5) . .
WestEnd25 . . . . . . .
220 20th Street . . . . .
2221 South Clark Street .
The Gale Eckington . .
Galvan . . . . . . . . .
*Fairway Apartments . . .
The Alaire . . . . . . .
Atlantic Plumbing . . . .
The Terano . . . . . . .
. . .
West
. . .
. . .
. . .
. . .
. . .
. . .
. . .
. . .
. . .
. . .
. . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
City
Submarket
.
Arlington, VA
.
Silver Spring, MD
.
Silver Spring, MD
.
Washington, DC
.
Washington, DC
.
Arlington, VA
.
Arlington, VA
.
Washington, DC
.
Rockville, MD
.
Reston, VA
. 3/27/2107 Rockville, MD
.
Washington, DC
. 8/5/2112 Rockville, MD
Pentagon City
Downtown Silver Spring
Downtown Silver Spring
Brookland/Fort Totten
West End
Crystal City
Crystal City
H Street/NoMa
Rockville Pike Corridor
Reston
Rockville Pike Corridor
U Street/Shaw
Rockville Pike Corridor
Number
Percent
Consolidated / Year Built /
of
Ownership Unconsolidated Renovated Units
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
5.0%
1.8%
10.0%
18.0%
64.0%
1.8%
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Unconsolidated
Unconsolidated
Unconsolidated
Unconsolidated
Unconsolidated
Unconsolidated
1960 / 2013
1938 / 2011
1938 / 1986
2015 / N/A
2009 / N/A
2009 / N/A
1964 / 2016
2013 / 2017
2015 / N/A
1969 / 2005
2010 / N/A
2015 / N/A
2015 / N/A
Total/Weighted Average . . . . . . . .
Recently Delivered(6)
The Bartlett . . . . . . . . . . . . . .
Arlington, VA
Pentagon City
100.0% Consolidated
Total/Weighted Average . . . . . . . . .
Under Construction
1221 Van Street . . . . . .
West Half III . . . . . . .
West Half II . . . . . . .
Atlantic Plumbing C—North
Atlantic Plumbing C—South
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Washington,
Washington,
Washington,
Washington,
Washington,
DC
DC
DC
DC
DC
Ballpark/Southeast
Ballpark/Southeast
Ballpark/Southeast
U Street/Shaw
U Street/Shaw
100.0%
94.2%
94.2%
100.0%
100.0%
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
2016 / N/A
Total
Square
Feet
Multifamily Retail
Multifamily Retail Annualized
Square
Square Percent
Percent
Percent
Rent
Feet
Feet Leased Occupied Occupied ($000s)
Average
Monthly
Rent Per
Unit(2)
Average
Monthly
Rent Per
Square
Foot(3)
1,670
268
162
345
283
265
216
603
356
346
279
310
214
1,322,016
222,949
119,443
384,316
273,264
271,790
171,080
466,716
390,650
370,850
266,497
245,527
199,768
1,319,354
222,949
119,443
253,652
273,264
269,913
164,743
465,516
295,033
370,850
251,691
221,788
183,496
2,662
—
—
130,664
—
1,877
6,337
1,200
95,617
—
14,806
23,739
16,272
97.4%
96.5%
86.8%
92.3%
98.3%
97.8%
100.0%
96.5%
87.2%
96.8%
92.3%
94.3%
86.1%
96.0%
94.4%
96.9%
85.2%
97.5%
97.4%
100.0%
92.7%
77.5%
94.2%
89.6%
92.6%
89.3%
100.0%
—
—
98.7%
—
83.3%
100.0%
100.0%
89.8%
—
100.0%
100.0%
57.9%
$ 33,430
5,209
2,698
8,122
11,438
7,928
3,183
13,822
9,651
6,237
5,650
10,705
4,315
$1,738
1,716
1,432
1,850
3,444
2,547
N/A
2,055
1,833
1,594
1,686
2,790
1,766
$2.20
2.06
1.94
2.52
3.57
2.50
N/A
2.66
2.21
1.49
1.87
3.90
2.06
5,317
4,704,866
4,411,692
293,174
94.9%
93.0%
93.6%
$122,388
$1,973
$2.38
699
619,372
577,295
42,077
87.1%
79.4%
100.0%
$ 18,748
$2,617
$3.17
6,016
5,324,238
4,988,987
335,251
94.0%
91.4%
94.4%
$141,136
$2,040
$2.46
291
249
216
161
95
226,546
211,939
176,235
145,605
79,926
202,988
211,939
134,476
134,180
71,877
23,558
—
41,759
11,425
8,049
Total/Weighted Average . . . . . . . .
1,012
840,251
755,460
84,791
Total/Weighted Average . . . . . . . . .
7,028
6,164,489
5,744,447
420,042
Multifamily Asset
Near-Term Development
7900 Wisconsin Avenue(7) . . . . . . . .
965 Florida Avenue . . . . . . . . . . .
Total
Subject to
Ground
Lease—
Expiration
Date
City
Bethesda, MD
Washington, DC
Submarket
Bethesda CBD
U Street/Shaw
Number
Percent
Consolidated / Year Built /
of
Ownership Unconsolidated Renovated Units
50.0% Unconsolidated
70.0% Unconsolidated
Total
Square
Feet
Multifamily Retail
Multifamily Retail Annualized
Square
Square Percent
Percent
Percent
Rent(2)
Feet
Feet Leased Occupied Occupied ($000s)
322
433
359,025
334,859
338,990
288,559
20,035
46,300
755
693,884
627,549
66,335
4,232
985
464
3,660,385
817,930
413,914
3,456,836
735,540
371,486
203,549
82,390
42,428
. . . . . . . . . . . . . . . .
Average
Monthly
Rent Per
Unit(3)(4)
Average
Monthly
Rent Per
Square
Foot(4)(5)
$2,101
$2.56
*Not Metro Served
170
Totals at JBG SMITH Share
Operating Assets . . . . . . . . . . . .
Under Construction Assets . . . . . . .
Near-Term Development Assets . . . . .
94.7%
92.5%
98.9%
$100,190
Note: Table shown at 100 percent share except where noted as JBG SMITH share. See the ‘‘Presentation of Information’’ on page ii for disclosure regarding at-share metrics.
(1)
Based on (i) for multifamily assets, or the multifamily component of mixed-use assets, the monthly base rent before free rent as of March 31, 2017, multiplied by 12; (ii) for retail components of multifamily assets, the monthly base rent before free rent, plus
tenant reimbursements as of March 31, 2017, multiplied by 12. Triple net leases are converted to a gross basis by adding tenant reimbursements to monthly base rent. See ‘‘Contractual Free Rent’’ for detail on free rent. Excludes signed but not yet commenced
leases.
(2)
Represents multifamily rent divided by occupied multifamily units. Occupied units may differ from leased units because leased units includes leases that have been signed for units within the asset, but that have not yet commenced.
(3)
Excludes 2221 South Clark Street (WeLive).
(4)
Represents multifamily rent divided by occupied multifamily square feet. Occupied multifamily square footage may differ from leased multifamily square footage because leased multifamily square footage includes leases that have been signed for units within the
asset, but that have not yet commenced.
(5)
We have negotiated an agreement with our joint venture partner to recapitalize the asset and increase our ownership from 99.4 percent to 100.0 percent.
(6)
Refers to assets that delivered within the 12 months ended March 31, 2017.
(7)
In May 2017, we recapitalized this asset and decreased our ownership from 100.0 percent to 50.0 percent.
Asset List as of March 31, 2017
Other Asset
City
Percent
Ownership
Submarket
Retail
North End Retail . . . . . . . . . Washington, DC U Street/Shaw
*
Vienna Retail . . . . . . . . . . . Vienna, VA
Vienna
*
Stonebridge at Potomac Town
Woodbridge,
Center—Phase I . . . . . . . . VA
Prince William County
Consolidated /
Unconsolidated
100.0% Consolidated
100.0% Consolidated
10.0% Unconsolidated
Year Built /
Renovated
Crystal City
Percent
Occupied
Annualized
Rent(2)
($000s)
Annualized
Rent Per
Square
Foot(3)
$ 1,123
383
$42.63
44.83
27,380
8,547
96.2%
100.0%
96.2%
100.0%
2012 / N/A
462,619
93.3%
93.0%
13,327
30.97
498,546
93.6%
93.3%
$14,833
$31.89
95.0%
94.8%
$ 2,839
$36.43
100.0% Consolidated
Total . . . . . . . . . . . . . . . .
Near-Term Development
*Stonebridge at Potomac Town
Woodbridge,
Center—Phase II . . . . . . . . VA
*Not Metro Served
Percent
Leased
2015 / N/A
1981 / N/A
Total/Weighted Average . . . . . .
Hotel
Crystal City Marriott Hotel . . . . Arlington, VA
Total Rentable
Square
Feet(1)
266,000 (345 Rooms)
764,546
Prince William County
10.0% Unconsolidated
Totals at JBG SMITH Share
Operating Assets . . . . . . . . .
Near-Term Development Assets . .
65,342
348,188
6,534
Note: Table shown at 100 percent share except where noted as JBG SMITH share. See the ‘‘Presentation of Information’’ on page ii for disclosure regarding at-share metrics.
(1)
Figure does not include over 1.0 million square feet of retail within our operating and under construction office portfolio and 420,000 square feet of retail within our operating
and under construction multifamily portfolio.
(2)
Represents monthly base rent before free rent, plus tenant reimbursements as of March 31, 2017, multiplied by 12. Triple net leases are converted to a gross basis by adding
tenant reimbursements to monthly base rent. See ‘‘Contractual Free Rent’’ for detail on free rent. Excludes signed but not yet commenced leases.
(3)
Represents annualized rent divided by occupied square feet. Occupied square footage may differ from leased square footage because leased square footage includes leases that
have been signed for space within the asset, but that have not yet commenced.
Future Development Assets
Our future development pipeline is comprised of development opportunities on which we do
not intend to commence construction within 18 months of March 31, 2017 where we (i) own land or
control land through a ground lease (16.0 million square feet of estimated total potential development
density at our share) or (ii) are under a long-term conditional contract to purchase, or enter into a
leasehold interest with respect to, land (2.3 million square feet of estimated total potential development
density at our share). The pipeline includes nine parcels attached to our existing operating assets that
would require a redevelopment of approximately 636,000 million office and/or retail square feet
(421,000 square feet at our share) and 316 multifamily units (177 units at our share) in order to access
approximately 4.9 million square feet of total estimated potential development density (3.3 million
square feet at our share). The estimated potential development densities and uses in the table below
reflect our current business plans as of March 31, 2017 and are subject to change based on market
conditions.
171
Future Development Assets
Future Development Assets as of March 31, 2017
At JBG SMITH Share
Estimated Potential Development Density
Submarket
Number of Assets
Total
Office
Multifamily
.
.
.
.
.
.
.
.
.
.
.
.
.
.
6
5
9
6
1
3
1
2
1
1
1
5
2
1
4,142,600
4,670,000
3,226,000
1,909,520
1,276,000
842,046
758,500
145,710
625,000
335,500
205,500
126,360
62,820
20,950
1,282,500
1,509,000
274,500
462,610
—
186,796
500,000
88,200
625,000
324,000
—
19,170
—
—
2,631,100
3,059,500
2,632,000
1,283,410
1,156,000
654,000
209,000
54,000
—
—
164,000
88,560
58,410
19,200
229,000
101,500
319,500
163,500
120,000
1,250
49,500
3,510
—
11,500
41,500
18,630
4,410
1,750
152,719 SF / 15 units
—
220,780 SF
—
162 units
—
—
22,203 SF
—
—
—
25,119 SF
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44
18,346,506
5,271,776
12,009,180
1,065,550
420,821 SF / 177 units
Retail
Estimated Commercial
Rentable Square Feet/
Multifamily Units to be
Replaced(1)
Reston, VA . . . . . . . . . . .
Pentagon City, VA . . . . . . .
Crystal City, VA . . . . . . . .
NoMa, DC . . . . . . . . . . .
Downtown Silver Spring, MD
Southwest, DC . . . . . . . . .
Potomac Yard, VA . . . . . . .
Rosslyn, VA . . . . . . . . . .
Alexandria, VA . . . . . . . .
CBD, DC . . . . . . . . . . . .
H Street/NoMa, DC . . . . . .
Rockville Pike Corridor, MD .
Clarendon/Courthouse, VA . .
Prince William County, VA . .
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Region
Retail
Estimated Commercial
Rentable Square Feet/
Multifamily Units to be
Replaced(1)
Number of Assets
Total
Office
Multifamily
Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Washington, DC . . . . . . . . . . . . . . . . . . . . . . . . .
Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
11
6
13,651,580
3,292,566
1,402,360
4,279,200
973,406
19,170
8,663,210
2,101,410
1,244,560
709,170
217,750
138,630
395,702 SF / 15 units
—
25,119 SF / 162 units
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44
18,346,506
5,271,776
12,009,180
1,065,550
420,821 SF / 177 units
Note: See the ‘‘Presentation of Information’’ on page ii for disclosure regarding at-share metrics.
(1)
Represents office and/or retail rentable square feet and multifamily units that would have to be redeveloped in order to access some of the estimated
potential development density.
Our Office Assets
We have a premier operating portfolio of office assets comprised of 50 assets and
approximately 14.1 million square feet (12.1 million square feet at our share), representing
approximately 70% of our total operating portfolio square footage as of March 31, 2017. These assets
were 87.1% leased as of March 31, 2017. Over 98% of our operating office assets are Metro-served
based on our share of rentable square feet as of March 31, 2017.
Additionally, our office portfolio has three assets under construction and two near-term
development assets representing approximately 1.3 million square feet (1.2 million square feet at our
share). Our three office assets under construction were 63.3% (64.3% at our share) pre-leased as of
March 31, 2017.
Our Multifamily Assets
We have a high-quality portfolio of multifamily assets consisting of 14 multifamily assets, over
5.3 million square feet (3.7 million square feet at our share) and 6,016 units (4,232 units at our share)
as of March 31, 2017. Our multifamily assets comprise over 26% of our total operating portfolio
rentable square feet. Additionally, our multifamily portfolio has five assets under construction and two
172
assets in the near-term development pipeline, representing over 1.5 million square feet (1.2 million
square feet at our share).
JBG’s development team has designed and constructed over 6,700 units since 2000. Our
strategy involves integrating retail amenities into our multifamily assets to help bolster leasing interest,
velocity and rental rates. Our design and leasing teams focus considerable creative and analytic
resources to identify highly valued tenant amenities and use this information to design and develop
innovative and valuable multifamily assets. Our units often achieve a premium to market, and our
multifamily assets (excluding recently delivered assets) were on average 94.9% leased as of March 31,
2017.
Our multifamily lease terms generally range from three to 24 months for new leases, with the
majority of new leases having terms of 12 months. Prior to the expiration of their lease, residents are
provided lease renewal options ranging from three to 15 months, with rental rates dependent on our
assessment of prevailing market conditions. Residents can opt to vacate at the expiration of their
current lease, continue their lease on a month-to-month basis or select a renewal option.
Our Other Assets
Our operating other portfolio is comprised of four assets and approximately 765,000 square
feet (348,000 at our share) representing approximately 3.8% of our total operating portfolio square
footage as of March 31, 2017. These assets, excluding Crystal City Marriott, were 93.6% leased as of
March 31, 2017.
The majority of our retail portfolio is embedded within our office and multifamily assets and is
a key component of our Placemaking strategy. We have relationships with major grocers in the
Washington, DC metropolitan area, having executed leases with Whole Foods Market, Harris Teeter,
Giant, Safeway, and Trader Joe’s, among others. In addition to major grocers, our retail tenants include
Walmart, CVS and multiple other national and local retailers. We believe our office and multifamily
rental rates reflect a significant premium attributable to the presence of thoughtfully curated retail
amenities, and we strive to incorporate, where possible, high-quality, value-creating retail space into our
office and multifamily assets. As of March 31, 2017, we had over 1.3 million operating retail square feet
integrated into our operating office and multifamily assets.
The Crystal City Marriott, a 345-room full-service hotel located in the heart of Crystal City, is
also part of our operating portfolio. In general, Marriott pays an affiliate of Vornado / Charles E.
Smith as lease payments one-half (50%) of all hotel revenues less operating expense, real estate taxes,
management fees, and reserves. The lease agreement with Marriott expires on July 31, 2025.
173
Tenant Diversity
As of March 31, 2017, we had 80 leases with various agencies and departments of the U.S.
federal government that accounted for approximately 22.3% of our share of the annualized rent from
our office and retail leases, while no other tenant accounted for more than 3.4% of our share of the
annualized rent from our office and retail leases. The following table sets forth information regarding
the 20 largest office and retail tenants in our operating portfolio based on annualized office and retail
rent as of March 31, 2017:
Tenant Diversity
Tenant Diversity as of March 31, 2017
At JBG SMITH Share
Annualized Rent(1)
($000s)
Number of Leases
Rentable Square
Feet
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80
9
5
9
5
1
2
5
5
1
3
1
3
2
1
2
1
4
3
1
1,187
2,559,283
320,791
274,361
241,288
125,863
115,315
89,525
140,885
71,615
102,756
122,271
90,905
92,834
64,003
86,996
160,503
54,675
81,045
58,641
74,833
5,657,235
24.2%
3.0%
2.6%
2.3%
1.2%
1.1%
0.8%
1.3%
0.7%
1.0%
1.2%
0.9%
0.9%
0.6%
0.8%
1.5%
0.5%
0.8%
0.6%
0.7%
53.3%
101,229
15,608
13,116
11,371
9,700
8,581
7,123
5,557
5,440
5,434
5,351
4,594
4,378
4,317
3,907
3,845
3,756
3,661
3,607
3,577
230,480
22.3%
3.4%
2.9%
2.5%
2.1%
1.9%
1.6%
1.2%
1.2%
1.2%
1.2%
1.0%
1.0%
0.9%
0.9%
0.8%
0.8%
0.8%
0.8%
0.8%
50.7%
Total In-Place Leases . . . . . . . . .
1,330
10,585,623
100.0%
$454,632
100.0%
Tenant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Percent of Total
Rentable Square
Feet
U.S. Government (GSA) . . . .
Family Health International . . .
Lockheed Martin Corporation .
Arlington County . . . . . . . . .
Paul Hastings LLP . . . . . . . .
Greenberg Traurig LLP . . . . .
Baker Botts . . . . . . . . . . . .
Public Broadcasting Service . . .
Cooley LLP . . . . . . . . . . . .
Accenture LLP . . . . . . . . . .
WeWork . . . . . . . . . . . . . .
Evolent Health LLC . . . . . . .
DRS Tech Inc dba Finmeccanica
RTKL Associates Inc . . . . . .
Conservation Intl. Foundation .
Noblis Inc . . . . . . . . . . . . .
U.S. Green Building Council . .
National Consumer Cooperative
Cushman & Wakefield Inc. . . .
The Int’l Justice Mission . . . .
Other . . . . . . . . . . . . . . .
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Percent of Total
Annualized Rent
Note: See the ‘‘Presentation of Information’’ on page ii for disclosure regarding at-share metrics.
(1)
Represents in-place monthly base rent before free rent, plus tenant reimbursements as of March 31, 2017 multiplied by 12. Triple net
leases are converted to a gross basis by adding tenant reimbursements to monthly base rent. See ‘‘Contractual Free Rent’’ for detail on
free rent. Excludes signed but not yet commenced leases.
174
Industry Diversification of Our Office and Other Portfolio
As of March 31, 2017, Government accounted for approximately 25.5% of our share of the
annualized rent of our office and retail leases. The next most represented industries within our portfolio as
of March 31, 2017 were Government Contractors, Business Services and Member Organizations,
representing 17.9%, 12.7% and 10.1%, respectively, of our share of the annualized rent from office and
retail leases. The following table sets forth information regarding the ten largest industries in our operating
portfolio based on annualized office and retail rent as of March 31, 2017:
Industry Diversification of Our Office and Other Portfolio
Industry Diversification as of March 31, 2017
At JBG SMITH Share
Industry
1
2
3
4
5
6
7
8
9
10
Number of Leases
Government . . . . . . .
Government Contractors .
Business Services . . . . .
Member Organizations . .
Legal Services . . . . . .
Real Estate . . . . . . . .
Health Services . . . . . .
Food and Beverage . . .
Communications . . . . .
Educational Services . . .
Other . . . . . . . . . . .
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.
Rentable Square
Feet
Percent of Total
Rentable Square
Feet
Annualized Rent(1)
($000s)
Percent of Total
Annualized Rent
.
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.
101
158
185
115
79
57
75
129
31
32
368
2,887,306
1,853,475
1,372,935
1,006,639
611,768
456,714
445,640
225,514
260,560
215,108
1,249,964
27.3%
17.5%
13.0%
9.5%
5.8%
4.3%
4.2%
2.1%
2.5%
2.0%
11.8%
$116,041
81,213
57,732
46,087
41,014
20,050
18,298
11,568
9,748
8,795
44,086
25.5%
17.9%
12.7%
10.1%
9.0%
4.4%
4.0%
2.5%
2.1%
1.9%
9.9%
Total In-Place Leases . . . . . . . . . . .
1,330
10,585,623
100.0%
$454,632
100.0%
Note: See the ‘‘Presentation of Information’’ on page ii for disclosure regarding at-share metrics.
(1)
Represents in-place monthly base rent before free rent, plus tenant reimbursements as of March 31, 2017 multiplied by 12. Triple net leases are
converted to a gross basis by adding tenant reimbursements to monthly base rent. See ‘‘Contractual Free Rent’’ for detail on free rent. Excludes
signed but not yet commenced leases.
175
Lease Expiration Schedule
The following table sets forth a summary schedule of the lease expirations for office and retail
leases in place as of March 31, 2017 at the assets in our operating portfolio. The information set forth in
the table assumes that tenants exercise no renewal options:
Lease Expiration Schedule
Lease Expiration Schedule as of March 31, 2017
At JBG SMITH Share
Estimated
Percent of
Percent of
Annualized
Number
Total
Annualized
Total
Annualized
Rent Per
of
Rentable
Rentable
Rent(1)
Annualized
Rent Per
Square Foot at
Leases Square Feet Square Feet
($000s)
Rent
Square Foot Expiration(2)
Year of Lease Expiration
Month to Month
2017 . . . . . . .
2018 . . . . . . .
2019 . . . . . . .
2020 . . . . . . .
2021 . . . . . . .
2022 . . . . . . .
2023 . . . . . . .
2024 . . . . . . .
2025 . . . . . . .
Thereafter . . . .
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79
147
177
155
168
122
103
60
68
53
198
89,346
650,987
902,090
1,318,862
1,381,579
1,073,998
1,286,340
363,754
579,019
378,337
2,561,311
0.8%
6.1%
8.5%
12.5%
13.1%
10.1%
12.2%
3.4%
5.5%
3.6%
24.2%
$ 1,256
25,487
39,852
59,531
65,188
48,364
58,537
13,921
25,806
14,838
101,852
0.3%
5.6%
8.8%
13.1%
14.3%
10.6%
12.9%
3.1%
5.7%
3.3%
22.3%
$14.06
39.15
44.18
45.14
47.18
45.03
45.51
38.27
44.57
39.22
39.77
$14.06
39.44
45.31
46.97
50.22
49.23
49.10
44.42
52.98
45.62
49.24
Total In-Place Leases . . . . . . . . . . . . . . . . . . . . . .
1,330
10,585,623
100.0%
$454,632
100.0%
$42.95
$47.74
Note: See the ‘‘Presentation of Information’’ on page ii for disclosure regarding at-share metrics.
(1)
Represents in-place monthly base rent before free rent, plus tenant reimbursements as of March 31, 2017 multiplied by 12. Triple net leases are
converted to a gross basis by adding tenant reimbursements to monthly base rent. See ‘‘Contractual Free Rent’’ for detail on free rent. Excludes
signed but not yet commenced leases.
(2)
Represents in-place monthly base rent before free rent, plus tenant reimbursements, as of lease expiration multiplied by 12 and divided by
rentable square feet. Triple net leases are converted to a gross basis by adding tenant reimbursements to monthly base rent. Tenant
reimbursements at lease expiration are estimated by escalating tenant reimbursements as of March 31, 2017, or management’s estimate thereof,
by two and three-quarters percent annually through the lease expiration year.
176
Signed But Not Yet Commenced Leases
The following table sets forth information relating to signed but not yet commenced office and
retail leases in our portfolio as of March 31, 2017. As of such date, there were approximately $17.1 million
($7.5 million at our share) of outstanding leasing costs related to signed but not yet commenced office and
retail leases in our operating portfolio.
Signed But Not Commenced Leases as of March 31, 2017
Estimated Rent(1) ($000s) At JBG SMITH Share
Quarter Ending:
Consolidated/
Unconsolidated
Assets
Office
Operating . . . . .
Operating . . . . .
Under Construction
Under Construction
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Consolidated
Unconsolidated
Consolidated
Unconsolidated
June 30, September 30, December 31, March 31, June 30, September 30,
2017
2017
2017
2018
2018
2018
Total Annualized
Estimated Rent
Thereafter(2)
$228
46
—
—
$1,439
296
29
—
$1,862
482
74
—
$1,862
482
5,541
—
$1,862
482
5,541
—
$1,862
482
5,541
—
$ 7,652
1,926
23,573
7,742
$274
$1,764
$2,418
$7,885
$7,885
$7,885
$40,893
$ —
—
$
—
—
$
4
—
$
4
—
$
4
—
$
4
—
$
$ —
$
—
$
4
$
4
$
4
$
4
$ 1
—
$
1
—
$
2
—
$
2
—
$
2
—
$
2
—
$
8
133
Total . . . . . . . . . . . . . . . . .
$ 1
$
1
$
2
$
2
$
2
$
2
$
141
Total . . . . . . . . . . . . . . . . . .
$275
$1,765
Total . . . . . . . . . . . . . . . . .
Multifamily
Operating . . . . . . . . . . . . . . . Unconsolidated
Near-Term Development . . . . . . . Unconsolidated
Total . . . . . . . . . . . . . . . . .
Other
Operating . . . . . . . . . . . . . . . Unconsolidated
Near-Term Development . . . . . . . Unconsolidated
$2,424
$7,891
$7,891
$7,891
16
2,059
$ 2,075
$43,109
Note: Table only includes leases for space that was vacant as of March 31, 2017. See the ‘‘Presentation of Information’’ on page ii for disclosure regarding
at-share metrics.
(1)
Represents contractual monthly base rent before free rent, plus estimated tenant reimbursements for the month in which the lease is estimated
to commence, multiplied by the applicable number of months for each quarter based on the lease’s estimated commencement date. Triple net
leases are converted to a gross basis by adding estimated tenant reimbursements to monthly base rent. See ‘‘Contractual Free Rent’’ for detail
on free rent.
(2)
Represents contractual monthly base rent before free rent, plus estimated tenant reimbursements for the month in which the lease is expected
to commence, multiplied by twelve. Triple net leases are converted to a gross basis by adding estimated tenant reimbursements to monthly base
rent. See ‘‘—Our Assets—Contractual Free Rent’’ for detail on free rent.
177
Contractual Free Rent
The following table sets forth information relating to contractual free rent in our operating
portfolio as of March 31, 2017 at our share:
Contractual Free Rent as of March 31, 2017
Contractual Free Rent(1) ($000s) At JBG SMITH Share
Quarter Ending:
Consolidated/ June 30, September 30, December 31, March 31, June 30, September 30,
Unconsolidated
2017
2017
2017
2018
2018
2018
Assets
Office
Operating . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated
Operating . . . . . . . . . . . . . . . . . . . . . . . . . . Unconsolidated
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,259
1,038
$4,622
830
$2,636
273
$2,591
225
$2,038
130
$1,154
28
$8,297
$5,452
$2,909
$2,816
$2,168
$1,182
Multifamily
Operating . . . . . . . . . . . . . . . . . . . . . . . . . . Unconsolidated
$
8
$
6
$
6
$
5
$
4
$
2
Other
Operating . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated
$
19
$
—
$
—
$
—
$
—
$
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,324
$5,458
$2,915
$2,821
$2,172
$1,184
Note: See the ‘‘Presentation of Information’’ on page ii for disclosure regarding at-share metrics.
(1)
Represents contractual free rent for in place and signed but not yet commenced leases as of March 31, 2017.
Asset Revenue and Operating Expenses
The tables below present certain financial and operating information for each of the assets that are
part of our operating portfolio—which excludes assets under construction and near-term development and
future development assets—based on historical results of operations for the three months ended March 31,
2017. Certain assets included in our operating portfolio were acquired, commenced lease-up or were placed
into service upon completion of development activity in 2015 and 2014. We have included the three-month
fiscal period ended March 31, 2017 because it reflects the most recent revenue and expense amounts for
the operating portfolio. This information is derived in part from the combined statement of revenues and
expenses from real estate operations of the JBG Real Estate Operating Assets for the three months ended
March 31, 2017 beginning on page F-70, which was prepared for the purpose of complying with Rule 3-14
of Regulation S-X promulgated under the Securities Act, and the combined statements of income for the
Vornado Included Assets for the three months ended March 31, 2017 beginning on page F-35. JBG
SMITH is not aware of any material factors relating to the JBG Real Estate Operating Assets, other than
those discussed in the notes to the JBG Real Estate Operating Assets’ combined statements of revenues
and expenses from real estate operations and the Vornado Included Assets combined statements of income,
that would cause the reported financial information not to be necessarily indicative of future operating
results.
We also present the Non-GAAP measure NOI. Please see the following paragraph for an
explanation of why our management believes the presentation of this metric provides useful information to
investors. This asset-level information is not necessarily indicative of our future asset-level results and/or our
results of operations. We believe, however, that this presentation of asset-level data will be useful to
investors in understanding the historical performance of our assets on an asset-level basis.
178
NOI is a metric management uses to measure the operating performance of our assets and
consists of property-related revenue (which includes base rent, tenant expense recoveries and other
operating revenue) less operating expenses, before non-cash straight-line rents and related party
management fees. We also present our share of NOI, which represents our share of the NOI generated
by our consolidated and unconsolidated operating assets based on our percentage ownership of such
assets. Management uses NOI as a supplemental performance measure for our assets and believes it
provides useful information to investors because it reflects only those revenue and expense items that
are incurred at the asset level, excluding non-cash items. In addition, NOI is considered by many in the
real estate industry to be a useful starting point for determining the value of a real estate asset or
group of assets. However, because NOI excludes depreciation and amortization and captures neither
the changes in the value of our assets that result from use or market conditions, nor the level of capital
expenditures and capitalized leasing commissions necessary to maintain the operating performance of
our assets, all of which have real economic effect and could materially impact the financial performance
of our assets, the utility of NOI as a measure of the operating performance of our assets is limited.
Moreover, other real estate companies may calculate NOI differently from how we do. Accordingly, our
NOI may not be comparable to other real estate companies’ NOI. NOI should be considered only as a
supplement to net operating income (loss) (computed in accordance with GAAP) as a measure of the
operating performance of our assets.
179
Summary NOI Table
For the three Months Ended March 31, 2017
(Amounts in thousands, except number of operating assets)
Consolidated
Number of operating assets . . . .
Property rentals . . . . . . . . . . .
Tenant expense reimbursement
Other revenue . . . . . . . . . . . .
.
.
.
.
.
.
.
.
At JBG SMITH Share
Unconsolidated
Office
Multifamily
Other
Total
.
.
.
.
49
$109,295
9,933
10,171
19
$11,919
1,929
1,004
50
$ 95,288
10,352
9,207
14
$24,550
1,341
1,342
4
$1,376
169
626
68
$121,214
11,862
11,175
Total Revenue . . . . . . . . . . . . . . . .
$129,399
$14,852
$114,847
$27,233
$2,171
$144,251
Total Expenses . . . . . . . . . . . . . . . .
(48,248)
(6,853)
(44,973)
(9,896)
(232)
(55,101)
Property Operating Income . . . . . . .
$ 81,151
$ 7,999
$ 69,874
$17,337
$1,939
Adjustments to arrive at NOI
Straight-line rent adjustment . . . . .
Related party adjustment(1) . . . . . .
Ground rent expense . . . . . . . . . .
$ (5,045)
3,136
(648)
$ (1,649)
552
(5)
$ (5,476)
3,398
(648)
$ (403)
260
(5)
$ (815) $ (6,694)
30
3,688
—
(653)
Total adjustments to arrive at NOI . .
$ (2,557)
$ (1,102)
$ (2,726)
$ (148)
$ (785) $ (3,659)
NOI . . . . . . . . . . . . . . . . . . . . . . .
$ 78,594
$ 6,897
$ 67,148
$17,189
$1,154
$ 85,491
Annualized NOI(2) . . . . . . . . . . . . . .
$314,376
$27,588
$268,592
$68,756
$4,616
$341,964
$ 10,725
10,725
$ 4,035
1,910
$ 13,770
11,958
$
$
$ 14,760
12,635
Additional Information
Free rent (at 100 percent share) . .
JBG SMITH share of free rent(3) .
Annualized JBG SMITH share of
free rent(3)(4) . . . . . . . . . . . . . .
Percent occupied(5) . . . . . . . . . . .
Annualized base rent of signed
leases, not commenced (at
100 percent share)(6) . . . . . . . .
JBG SMITH share of annualized
base rent of signed leases, not
commenced(6)(7) . . . . . . . . . . .
.
.
.
.
42,900
87.2%
7,640
88.2%
47,832
85.4%
.
$ 7,652
$ 6,838
$ 13,499
.
7,652
1,951
9,579
972
659
2,636
92.4%
$
913
16
18
18
$ 89,150
72
99.0%
$
50,540
87.2%
78
$ 14,490
8
9,603
(1)
To eliminate management fees included in Property Operating Income.
(2)
Represents NOI for the three months ended March 31, 2017 multiplied by four. Management believes Annualized NOI
provides useful information in understanding JBG SMITH’s financial performance over a period of 12 months.
However, investors and other users are cautioned against attributing undue certainty to our calculation of Annualized
NOI. Actual NOI for any 12-month period will depend on a number of factors beyond our ability to control or predict,
including general capital markets and economic conditions, any bankruptcy, insolvency, default or other failure to pay
rent by one or more of our tenants and the destruction of one or more of our properties due to terrorist attack,
natural disaster or other casualty, among others. We do not undertake any obligation to update our calculation to
reflect events or circumstances occurring after the date of this information statement. There can be no assurance that
the Annualized NOI shown will reflect JBG SMITH’s actual results of operations over any 12-month period.
(3)
Represents JBG SMITH’s pro rata share of free rent based on JBG SMITH’s ownership percentage as of March 31,
2017. See the ‘‘Presentation of Information’’ section, beginning on page ii, for disclosure regarding at-share metrics.
(4)
Represents JBG SMITH share of free rent for the three months ended March 31, 2017 multiplied by four.
(5)
Weighted by our share of rentable square feet.
(6)
Represents monthly base rent before free rent and straight line rent adjustments, plus estimated tenant reimbursements
for the month in which the lease commences, multiplied by twelve. Triple net leases are converted to a gross basis by
adding estimated tenant reimbursements to monthly base rent. See ‘‘—Our Assets—Contractual Free Rent’’ for detail
on free rent.
(7)
Represents JBG SMITH share of base rent of signed but not yet commenced leases for the three months ended
March 31, 2017 multiplied by four.
180
Summary Office NOI Table
For the three Months Ended March 31, 2017
(Amounts in thousands, except number of operating assets)
At JBG SMITH Share
Consolidated
Unconsolidated
DC
VA
MD
Total
Office
Number of operating assets . . . . . .
Property rentals . . . . . . . . . . . .
Tenant expense reimbursement . .
Other revenue . . . . . . . . . . . . .
Total Revenue . . . . . . . . . . . . . . .
Total Expenses . . . . . . . . . . . . . . .
Property Operating Income . . . . . .
Adjustments to arrive at NOI
Straight-line rent adjustment . . .
Related party adjustment(1) . . . .
Ground rent expense . . . . . . . .
Total adjustments to arrive at NOI
NOI . . . . . . . . . . . . . . . . . . . . . .
38
$ 86,142
8,589
8,336
$103,067
(39,095)
$ 63,972
12
$ 9,146
1,763
871
$11,780
(5,878)
$ 5,902
14
31
5
50
$ 27,501 $ 63,386 $ 4,401 $ 95,288
5,891
4,216
245
10,352
1,945
6,777
485
9,207
$ 35,337 $ 74,379 $ 5,131 $114,847
(15,866) (27,085) (2,022) (44,973)
$ 19,471 $ 47,294 $ 3,109 $ 69,874
$ (4,100)
2,959
(648)
$ (1,789)
$ 62,183
$ (1,376)
439
—
$ (937)
$ 4,965
$ (2,624) $ (2,954) $ 102 $ (5,476)
1,110
2,138
150
3,398
(200)
(250)
(198)
(648)
$ (1,714) $ (1,066) $
54 $ (2,726)
$ 17,757 $ 46,228 $ 3,163 $ 67,148
Annualized NOI(2) . . . . . . . . . . . .
$248,732
$19,860
$ 71,028
$184,912
$12,652
$268,592
$ 10,159
10,159
$ 3,611
1,799
$ 5,562
3,821
$
$
$ 13,770
11,958
Additional Information
Free rent (at 100 percent share) .
JBG SMITH share of free rent(3)
Annualized JBG SMITH share
of free rent(3)(4) . . . . . . . . . . .
Percent occupied(5) . . . . . . . . . .
Annualized base rent of signed
leases, not commenced (at
100 percent share)(6) . . . . . . .
JBG SMITH share of annualized
base rent of signed leases, not
commenced(6)(7) . . . . . . . . . . .
40,636
85.2%
$
7,196
86.8%
15,284
90.7%
7,652
$ 5,847
$ 6,633
7,652
1,927
2,765
8,069
7,998
31,992
83.5%
$
139
139
556
88.2%
47,832
85.4%
4,791
$ 2,075
$ 13,499
4,791
2,023
9,579
(1)
To eliminate management fees included in Property Operating Income.
(2)
Represents NOI for the three months ended March 31, 2017 multiplied by four. Management believes Annualized NOI
provides useful information in understanding JBG SMITH’s financial performance over a period of 12 months.
However, investors and other users are cautioned against attributing undue certainty to our calculation of Annualized
NOI. Actual NOI for any 12-month period will depend on a number of factors beyond our ability to control or predict,
including general capital markets and economic conditions, any bankruptcy, insolvency, default or other failure to pay
rent by one or more of our tenants and the destruction of one or more of our properties due to terrorist attack,
natural disaster or other casualty, among others. We do not undertake any obligation to update our calculation to
reflect events or circumstances occurring after the date of this information statement. There can be no assurance that
the Annualized NOI shown will reflect JBG SMITH’s actual results of operations over any 12-month period.
(3)
Represents JBG SMITH’s pro rata share of free rent based on JBG SMITH’s ownership percentage as of March 31,
2017. See the ‘‘Presentation of Information’’ section, beginning on page ii, for disclosure regarding at-share metrics.
(4)
Represents JBG SMITH share of free rent for the three months ended March 31, 2017 multiplied by four.
(5)
Weighted by our share of rentable square feet.
(6)
Represents monthly base rent before free rent and straight line rent adjustments, plus estimated tenant reimbursements
for the month in which the lease commences, multiplied by twelve. Triple net leases are converted to a gross basis by
adding estimated tenant reimbursements to monthly base rent. See ‘‘—Our Assets—Contractual Free Rent’’ for detail
on free rent.
(7)
Represents JBG SMITH share of base rent of signed but not yet commenced leases for the three months ended
March 31, 2017 multiplied by four.
181
Summary Multifamily NOI Table
For the three Months Ended March 31, 2017
(Amounts in thousands, except number of operating assets)
At JBG SMITH Share
Consolidated
Unconsolidated
DC
VA
MD
Total
Multifamily
.
.
.
.
8
$22,062
1,239
1,210
6
$2,488
102
132
4
$ 6,809
259
422
5
$15,458
1,017
819
5
$2,283
65
101
14
$24,550
1,341
1,342
Total Revenue . . . . . . . . . . . . . . . .
$24,511
$2,722
$ 7,490
$17,294
$2,449
$27,233
Number of operating assets . . . .
Property rentals . . . . . . . . . .
Tenant expense reimbursement
Other revenue . . . . . . . . . . .
.
.
.
.
.
.
.
.
Total Expenses . . . . . . . . . . . . . . . .
(9,017)
(879)
(2,599)
(6,344)
$15,494
$1,843
$ 4,891
Adjustments to arrive at NOI
Straight-line rent adjustment . . . .
Related party adjustment(1) . . . . . .
Ground rent expense . . . . . . . . . .
$ (148)
163
—
$ (255)
97
(5)
$ (257) $ (143) $
161
7
—
—
(3)
92
(5)
$ (403)
260
(5)
Total adjustments to arrive at NOI . .
$
$ (163)
$
84
$ (148)
NOI . . . . . . . . . . . . . . . . . . . . . . .
$15,509
$1,680
$ 4,795
$10,814
$1,580
$17,189
$62,036
$6,720
$19,180
$43,256
$6,320
$68,756
$
$ 424
111
$
$
$ 196
13
$
(2)
Annualized NOI
.............
Additional Information
Free rent (at 100 percent share) .
JBG SMITH share of free rent(3)
Annualized JBG SMITH share of
free rent(3)(4) . . . . . . . . . . . . .
Percent occupied(5) . . . . . . . . . .
Annualized base rent of signed
leases, not commenced (at
100 percent share)(6) . . . . . . . .
JBG SMITH share of annualized
base rent of signed leases, not
commenced(6)(7) . . . . . . . . . . .
.
.
.
.
.
.
548
548
2,192
92.4%
$
444
92.5%
—
$ 913
—
16
(96) $ (136) $
272
146
584
93.7%
$
$1,496
(9,896)
Property Operating Income . . . . . . .
15
$10,950
(953)
—
—
504
500
2,000
92.2%
$
$17,337
52
90.7%
—
$ 913
—
16
972
659
2,636
92.4%
$
913
16
(1)
To eliminate management fees included in Property Operating Income.
(2)
Represents NOI for the three months ended March 31, 2017 multiplied by four. Management believes Annualized NOI
provides useful information in understanding JBG SMITH’s financial performance over a period of 12 months.
However, investors and other users are cautioned against attributing undue certainty to our calculation of Annualized
NOI. Actual NOI for any 12-month period will depend on a number of factors beyond our ability to control or predict,
including general capital markets and economic conditions, any bankruptcy, insolvency, default or other failure to pay
rent by one or more of our tenants and the destruction of one or more of our properties due to terrorist attack,
natural disaster or other casualty, among others. We do not undertake any obligation to update our calculation to
reflect events or circumstances occurring after the date of this information statement. There can be no assurance that
the Annualized NOI shown will reflect JBG SMITH’s actual results of operations over any 12-month period.
(3)
Represents JBG SMITH’s pro rata share of free rent based on JBG SMITH’s ownership percentage as of March 31,
2017. See the ‘‘Presentation of Information’’ section, beginning on page ii, for disclosure regarding at-share metrics.
(4)
Represents JBG SMITH share of free rent for the three months ended March 31, 2017 multiplied by four.
(5)
Weighted by our share of rentable square feet.
(6)
Represents monthly base rent before free rent and straight line rent adjustments, plus estimated tenant reimbursements
for the month in which the lease commences, multiplied by twelve. Triple net leases are converted to a gross basis by
adding estimated tenant reimbursements to monthly base rent. See ‘‘—Our Assets—Contractual Free Rent’’ for detail
on free rent.
(7)
Represents JBG SMITH share of base rent of signed but not yet commenced leases for the three months ended
March 31, 2017 multiplied by four.
182
Reconciliation of Net Operating Income
The following table reconciles (i) Net Income attributable to the Vornado Included Assets to
Property Operating Income and (ii) Property Operating Income for the Vornado Included Assets and
JBG Included Assets to Net Operating Income:
(Amounts in thousands)
Three months ended
March 31, 2017
Vornado
JBG
Included
Included
Total
Assets
Assets
JBG SMITH
Net Income attributable to the Vornado Included Assets . . .
Adjustments
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .
Ground rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management and leasing fees . . . . . . . . . . . . . . . . . . . . . .
Income from partially owned entities . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . .
Transaction Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and debt expense . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Partially owned entities’ share of property operating income
Other non-operating loss from incidental operations . . . . . .
.......
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.
.
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.
.
.
.
.
Property Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Straight-line rent adjustment . . . . . . . . . . . . . . . . . . . .
Related party adjustment(2) . . . . . . . . . . . . . . . . . . . . .
Ground rent expense . . . . . . . . . . . . . . . . . . . . . . . . .
Straight-line rent adjustment for partially owned entities
Related party adjustment for partially owned entities(2) .
Ground rent expense for partially owned entities . . . . .
.
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NOI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,318
33,782
441
(7,000)
(88)
(896)
13,690
5,841
13,918
354
3,518
2,474
$72,352
(3,716)
2,542
(429)
(609)
276
—
$70,416
$16,798(1)
(1,329)
594
(219)
(1,040)
276
(5)
$15,075
$89,150
(5,045)
3,136
(648)
(1,649)
552
(5)
$85,491
(1)
Represents revenues of $28.9 million less operating expenses of $12.1 million for three months ended March 31, 2017.
(2)
To eliminate management fees included in Property Operating Income.
Our Third-Party Asset Management and Real Estate Services Business
Our third-party asset management and real estate services business provides fee-based services
to a variety of real estate owners, including the real estate investment funds for which JBG has served
as general partner or managing member, joint ventures in which those investment funds have an
interest, and in certain cases, third parties. We expect that the fees we continue to earn in connection
with providing such services will enhance our overall returns, provide additional scale and efficiency in
our operating, development and acquisition businesses and generate capital which we can use to absorb
overhead and other administrative costs of the platform. This scale provides competitive advantages,
including market knowledge, buying power and operating efficiencies across all product types. We also
believe that our existing relationships arising out of our third-party asset management and real estate
services business will continue to provide potential capital and new investment opportunities.
183
Revenues
Our third-party asset management and real estate services business provides a wide range of
real estate services, including investment, development, asset and property management, leasing,
construction management and other services. This business derives its revenue primarily from fees
earned for providing such services. The substantial majority of these fees will be generated by providing
services with respect to assets in which we have less than a 100% ownership interest and JBG Excluded
Assets. We expect from time to time to provide real estate services to assets in which we do not have
an ownership interest, particularly in situations where we might sell an asset to an institutional investor
and continue to provide property management and leasing services for the new owner.
The primary revenue streams for our third-party asset management and real estate services
business include the following:
• Asset management. We provide asset management services to each of the investment funds
and substantially all of the joint ventures in which we have an interest. These services include
all aspects of asset management, including analyses regarding appropriate capital allocation
and decisions with respect to all aspects of operation of an asset, such as identifying
renovation/repositioning opportunities and strategic opportunities for pursuing sale or
financing transactions.
• Development and construction management. We provide development and construction
management services for new development and redevelopment projects, as well as
construction management for tenant improvement construction. We are experienced in all
facets of development projects, including obtaining appropriate regulatory and zoning
approvals, entering into contracts with general contractors and managing the construction
process.
• Property management. We provide property management services to the owners of residential
communities, office buildings and retail assets. Our property management function provides
‘‘on the ground’’ intense management of an asset, as we seek to provide quality services for
our tenants while identifying opportunities for increasing revenue and optimizing expenses
for the building owner.
• Leasing. We provide leasing services to the owners of office buildings and retail assets. We
leverage our extensive existing relationships with major corporations and retailers to identify
attractive leasing opportunities for the building owner.
• Other Services. We also provide other ancillary services to property owners, such as legal,
marketing and administrative support, for which we receive fees or reimbursements of our
expenses.
Our third-party asset management and real estate services business generated approximately
$17.7 million and $78.7 million in combined pro forma revenue from such fees ($17.1 million and
$78.7 million at our share) for the three months ended March 31, 2017 and the year ended
December 31, 2016, respectively, from the JBG Funds, other JBG-affiliated entities, joint ventures and
third parties with whom we have long-standing relationships. The table below summarizes such fees
from joint venture partners and other third parties for the three months ended March 31, 2017 and the
year ended December 31, 2016. We expect to earn fees in the future from the JBG Funds, other
JBG-affiliated entities and our joint venture arrangements currently in place, as well as any future joint
ventures that we establish. Certain members of our senior management will continue to have an
ownership interest in the JBG Funds and will continue to own carried interests in each fund and
certain joint ventures that will entitle them to receive additional compensation if the fund or joint
venture achieves certain return thresholds. See ‘‘Risk Factors—Risks Related to the Separation and the
Combination—After the separation and the combination, certain of our trustees and executive officers
184
may have actual or potential conflicts of interest because of their previous or continuing equity interest
in, or positions at, Vornado or the JBG Parties, as applicable, including members of our senior
management, who will continue to have an ownership interest in the JBG Funds and will continue to
own carried interests in each fund and in certain of our joint ventures that will entitle them to receive
additional compensation if the fund or joint venture achieves certain return thresholds’’ for additional
information.
Development, Management, and Other Service Revenues Table
Three Months Ended March 31, 2017
Elimination/
Vornado
JBG
Other
Consolidated Unconsolidated
Included Operating Pro Forma
Pro Forma
JBG SMITH JBG SMITH
Assets
Partners Adjustments JBG SMITH
Share
Share
(Amounts in thousands)
Asset management fees . . .
Property management fees .
Leasing fees . . . . . . . . . .
Development fees . . . . . .
Construction management
fees . . . . . . . . . . . . . .
Other service revenues . . .
.
.
.
.
. $ —
. 2,197
.
333
.
144
$
—
(866)
(25)
(144)
$ 5,212
6,667
2,835
1,898
$—
—
—
80
$ 5,212
6,140
2,811
1,898
$ 5,212
6,140
2,811
1,978
36
71
662
345
(22)
—
676
416
3
—
670
321
673
321
Total development,
management and other
service revenues . . . . . . . $2,781
$15,980
$(1,057)
$17,704
$83
$17,052
$17,135
(2)
Joint Venture Adjustment
..
..
$ 5,212
5,336
2,527
1,898
Total(1)
..
(569)
Pro rata share of total
development,
management and other
service revenues . . . . . . .
$17,135
Year Ended December 31, 2016
Elimination/
Vornado
JBG
Other
Consolidated Unconsolidated
Included Operating Pro Forma
Pro Forma
JBG SMITH JBG SMITH
Assets
Partners Adjustments JBG SMITH
Share
Share
(Amounts in thousands)
Asset management fees . . .
Property management fees .
Leasing fees . . . . . . . . . .
Development fees . . . . . .
Construction management
fees . . . . . . . . . . . . . .
Other service revenues . . .
$23,176
21,792
4,677
11,803
$
—
(7,219)
(76)
(396)
$23,176
25,216
9,236
11,803
$—
—
—
22
$23,176
25,725
9,186
11,803
$23,176
25,725
9,186
11,825
1,181
223
4,830
3,472
(41)
(394)
5,970
3,301
12
11
5,947
2,771
5,959
2,782
Total development,
management and other
service revenues . . . . . $17,078
$69,750
$(8,126)
$78,702
$45
$78,608
$78,653
(2)
Joint Venture Adjustment
.
.
.
.
. $
—
. 10,643
.
4,635
.
396
Total(1)
..
..
..
(49)
Pro rata share of total
development,
management and other
service revenues . . . . . . .
$78,653
(1)
Represents pro forma JBG SMITH development, management and other service revenue for the three months ended
March 31, 2017 and the year ended December 31, 2016 net of the joint venture adjustments noted in (2) below.
(2)
Joint venture adjustments are comprised of (i) add back of fees attributable to partners in our consolidated joint
ventures and (ii) deductions of our share of fees generated by our unconsolidated real estate ventures. We believe that
185
pro rata share of total development management and other service revenues, which is net of fees attributable to our
ownership in our joint ventures, is useful to investors because it allows investors to understand the incremental
earnings derived by JBG SMITH from providing services to its joint ventures, the JBG Funds, other JBG affiliated
entities and third parties. See the ‘‘Presentation of Information’’ section, beginning on page ii, for disclosure regarding
at share metrics.
Tangible Assets and Liabilities
We believe the schedule of pro forma net tangible assets is useful in understanding the
Company’s initial capitalization and resources. The tangible consolidated assets and liabilities include
financial statement line items which correspond to JBG SMITH Properties Pro Forma Combined
Balance Sheet. The tangible assets and liabilities of unconsolidated joint ventures and non-controlling
interests were derived on an entity-by-entity basis by applying JBG SMITH’s economic interest to each
applicable financial statement line item. Pro forma pro rata net tangible assets (liabilities) is a
non-GAAP measure and should be viewed in conjunction with the total assets and total liabilities in the
JBG SMITH Properties pro forma combined financial statements.
186
The following table shows tangible assets and liabilities for the Vornado Included Assets, the
JBG Included Assets, and JBG SMITH, pro forma at share, as of March 31, 2017.
As of March 31, 2017
Pro Forma
Pro Forma At Share
JBG Included Assets
(Amounts in thousands)
Tangible assets:
Cash and cash equivalents . . . . .
Restricted cash . . . . . . . . . . .
Tenant and other receivables, net
of allowance for doubtful
accounts . . . . . . . . . . . . .
Notes receivable and other assets,
including prepaid expenses . . .
JBG
SMITH
Properties
$ 1
—
Vornado
Included
Assets
$
50,712
4,728
—
28,442
JBG
Consolidated
Assets and
JBG
Unconsolidated Elimination
Other
Total
Total
Operating
Real Estate
Pro Forma
Pro Forma
Total
Consolidated Unconsolidated
Partners
Ventures
Adjustments Adjustments JBG SMITH JBG SMITH
JBG SMITH
$
—
—
$
22,576
13,913
25,039
1,370
$
—
—
(2,272)
—
10,085
495
55,171
Total tangible assets . . . . . . .
1
93,967
25,534
93,030
(2,272)
Tangible liabilities:
Accounts payable and accrued
expenses . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . .
—
—
$
42,227
37,278
$ 17,052
—
41,815
9,508
$(2,272)
—
$17,412
5,716
37,606
37,606
4,523
(14,973)
—
51,323
$510,506
18,641
—
65,751
65,750
934
422,256
632,516
632,503
28,585
90,854
46,786
$ 90,849
46,785
$12,813
9,570
(7,968)
—
—
137,640
137,634
22,383
$ 1
$
14,462
$
8,482
$
41,707
$
—
$ 430,224
$ 494,876
$494,869
$ 6,202
Reconciliation of pro forma net
tangible assets (liabilities) to pro
forma at share net tangible assets
(liabilities):
Pro forma net tangible assets
(liabilities) . . . . . . . . . . .
Joint venture adjustments(1) . . .
$ 1
—
$
14,462
4,174
$
8,482
—
$
41,707
2,016
$
—
5
$ 430,224
—
$ 494,876
6,195
Pro forma at share net tangible
assets (liabilities) . . . . . . .
$ 1
$
18,636
$
8,482
$
43,723
$
5
$ 430,224
$ 501,071
$ 1
$3,686,203
$185,610
$ 361,190
$6,315,818
—
—
3,220,795
—
6,813
68,842
—
—
4,074
—
4,915,491
53,831
—
140,329
—
—
—
—
140,329
—
2,904
84,397
83,129
—
—
170,430
—
—
102,356
75,894
—
—
—
—
—
—
—
(75,894)
102,356
—
—
—
—
447
—
10,754
11,201
$2,085,086
1,683,809
(15,011)
$(2,272)
(7,968)
49,958
24
—
289,664
93,967
$ 25,534
$
93,030
$(2,272)
$ 422,256
$ 632,516
$—
$1,545,616
$ 22,832
$ 778,980
$(2,272)
$ 41,580
$2,386,736
—
—
—
—
1,161,984
—
—
289,590
—
—
—
—
725,662
—
—
—
—
—
—
—
—
—
11,216
3,321
—
5,780
1,466
529
—
—
79,505
$ 17,052
Total tangible assets . . . . . . . . .
$ 1
$
Total liabilities . . . . . . . . . . . .
Less:
Mortgages payable, net of deferred
financing costs . . . . . . . . . . .
Revolving credit facility . . . . . . .
Unsecured term loan . . . . . . . . .
Payable to Vornado . . . . . . . . . .
Identified intangible liabilities, net of
accumulated amortization . . . . .
Other liabilities . . . . . . . . . . . .
Total tangible liabilities . . . . . . .
$—
$
239,682
(2,272)
$
Net tangible assets (liabilities) .
—
17,052
$ 510,518
18,641
Total tangible liabilities . . . . .
Reconciliation of pro forma total
assets and liabilities to pro forma
tangible assets and liabilities:
Total assets . . . . . . . . . . . . . .
Less:
Real estate, net . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . .
Receivables arising from the
straight-lining of rents . . . . . . .
Identified intangible assets, net of
accumulated amortization . . . . .
Deferred leasing costs, net of
accumulated amortization . . . . .
Receivable from Vornado . . . . . .
Notes receivable and other assets,
including prepaid expenses . . . .
Investments in unconsolidated real
estate ventures . . . . . . . . . . .
79,505
$
$ 437,229
—
$
51,323
—
$(2,272)
171,869
117,269
50,000
(289,590)
—
—
$
(7,968)
2,059,515
117,269
50,000
—
12,682
9,630
$ 137,640
Note: See the ‘‘Presentation of Information’’ section, beginning on page ii, for disclosure regarding at-share metrics.
(1)
Joint venture adjustments are comprised of (a) deductions of noncontrolling interests attributable to partners in our consolidated joint ventures and
(b) add-back of our share of the tangible assets and liabilities of the unconsolidated real estate ventures.
187
Outstanding Indebtedness Table
The following table summarizes our pro forma outstanding indebtedness as of March 31, 2017.
JBG SMITH
Ownership
Percentage
Asset
Consolidated
2011 Crystal Drive . . . . . . . . . . .
1730 M Street & 1150 17th Street(3)
220 20th Street . . . . . . . . . . . . .
4747 Bethesda Avenue(4) . . . . . . .
North End Retail . . . . . . . . . . . .
Fort Totten Square(5) . . . . . . . . . .
1900 N Street(6) . . . . . . . . . . . . .
7200 Wisconsin Avenue—Senior . . .
7200 Wisconsin Avenue—Mezz . . .
1900 N Street(7) . . . . . . . . . . . . .
Courthouse Plaza 1 and 2(8) . . . . . .
Summit I & II . . . . . . . . . . . . . .
RTC—West(9) . . . . . . . . . . . . . .
WestEnd25 . . . . . . . . . . . . . . . .
Universal Buildings . . . . . . . . . . .
CEB Tower at Central Place . . . . .
The Bartlett(10) . . . . . . . . . . . . . .
2121 Crystal Drive(11) . . . . . . . . . .
Falkland Chase—South & West . . .
Falkland Chase—North . . . . . . . .
West Half II, West Half III(12) . . . .
800 North Glebe Road(13) . . . . . . .
1221 Van Street . . . . . . . . . . . . .
2101 L Street . . . . . . . . . . . . . . .
1233 20th Street . . . . . . . . . . . . .
1215 S. Clark Street, 200 12th Street
S., and 251 18th Street S. . . . . .
Riverhouse Apartments . . . . . . . .
Payable to Vornado(14) . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
94.2%
100.0%
100.0%
100.0%
100.0%
. .
. .
. .
Principal
Balance
($000s)
$
Current
Interest Annual
Rate Interest
Hedge Rate(1)
Initial
Maturity
Date
Extended
Maturity
Date(2)
74,674
—
68,041
12,500
7,850
72,630
28,028
83,130
15,000
1,478
11,000
59,000
107,720
100,455
185,000
101,206
220,000
141,015
42,674
22,880
—
107,500
23,842
142,676
43,382
7.30%
L + 1.25%
4.61%
L + 2.75%
L + 2.25%
L + 2.15%
L + 2.50%
L + 1.75%
L + 7.54%
4.00%
L + 1.60%
L + 1.70%
L + 2.20%
4.88%
L + 1.90%
L + 2.45%
L + 1.70%
5.51%
3.78%
L + 2.32%
L + 2.85%
L + 1.60%
L + 2.65%
3.97%
4.38%
Fixed
—
Fixed
—
—
Swap
Swap
Cap
Cap
Fixed
—
Cap
—
Fixed
Cap
Swap
—
Fixed
Fixed
Cap
—
—
—
Fixed
Fixed
7.30%
2.03%
4.61%
3.73%
3.23%
4.23%
4.07%
2.73%
8.52%
4.00%
2.45%
2.68%
3.18%
4.88%
2.69%
3.66%
2.68%
5.51%
3.78%
3.30%
3.83%
2.58%
3.63%
3.97%
4.38%
8/1/17
8/25/17
2/1/18
4/29/18
7/31/17
6/11/18
5/8/19
12/23/18
12/23/18
1/23/18
5/10/18
8/4/20
4/12/20
6/1/21
8/12/19
11/7/18
7/15/22
3/1/23
6/1/23
6/1/23
6/30/21
6/30/22
8/31/20
8/15/24
11/1/19
8/1/17
8/25/17
2/1/18
4/29/18
7/31/18
12/11/18
5/8/19
12/23/19
12/23/19
1/23/20
5/10/20
8/4/20
4/12/21
6/1/21
8/12/21
11/7/21
7/15/22
3/1/23
6/1/23
6/1/23
6/30/23
6/30/24
8/31/23
8/15/24
11/1/24
100.0%
100.0%
100.0%
90,118
307,710
117,269
7.94%
Fixed
L + 1.28% —
L + 1.05% —
7.94%
2.07%
2.03%
1/1/25
4/1/25
1/4/20
1/1/25
4/1/25
1/4/20
100.0%
$2,186,778
L
L
L
L
L
L
L
—
Cap
—
Cap
Swap
Cap
Swap
2.03%
3.68%
4.98%
3.08%
3.52%
3.08%
6.04%
1/19/18
12/12/17
3/30/18
11/8/17
1/1/20
3/13/18
9/9/17
1/19/18
12/12/18
3/30/19
11/8/19
1/1/20
3/13/20
9/9/20
Total Premium / Discount . . . . . . . . .
(9,994)
Total Consolidated Indebtedness . . . .
$2,176,784
Total Consolidated Indebtedness
Reconciliation
Mortgages payable, net of deferred
financing costs . . . . . . . . . . . . . .
Payable to Vornado . . . . . . . . . . . . .
$2,059,515
117,269
Total Consolidated Indebtedness . . . .
$2,176,784
Unconsolidated
1101 17th Street . . . . . . . . . . . . . .
Galvan . . . . . . . . . . . . . . . . . . . .
Capitol Point—North . . . . . . . . . . .
The Terano . . . . . . . . . . . . . . . . .
11333 Woodglen Drive . . . . . . . . . .
The Alaire . . . . . . . . . . . . . . . . .
Atlantic Plumbing . . . . . . . . . . . . .
L’Enfant Plaza Office—North,
L’Enfant Plaza Office—East,
L’Enfant Plaza Retaill(15) . . . . . . .
Rosslyn Gateway—North, Rosslyn
Gateway—South . . . . . . . . . . . .
The Foundry . . . . . . . . . . . . . . . .
L’Enfant Plaza Office—Southeast(16) .
Stonebridge at Potomac Town Center
The Warner . . . . . . . . . . . . . . . . .
Stated
Interest
Rate
.
.
.
.
.
.
.
55.0%
1.8%
59.0%
1.8%
18.0%
18.0%
64.0%
$
31,000
84,113
10,996
38,026
13,532
39,165
88,475
.
49.0%
213,818
L + 3.65%
Cap
4.80%
5/8/19
5/8/21
.
.
.
.
.
18.0%
9.9%
49.0%
10.0%
55.0%
46,000
45,913
—
94,563
273,000
L
L
L
L
Cap
Cap
Cap
Swap
Fixed
2.98%
2.83%
4.73%
3.25%
3.65%
11/17/19
12/12/19
5/8/20
12/10/20
6/1/23
11/17/21
12/12/21
5/8/22
12/10/22
6/1/23
188
+
+
+
+
+
+
+
1.25%
2.70%
4.00%
2.10%
1.90%
2.10%
2.25%
+ 2.00%
+ 1.85%
+ 3.75%
+ 1.70%
3.65%
JBG SMITH
Ownership
Percentage
Asset
7900 Wisconsin Avenue(17)
Fairway Apartments . . . .
The Gale Eckington . . . .
Pickett Industrial Park . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total Premium / Discount . . . . . . . . .
Principal
Balance
($000s)
50.0%
10.0%
5.0%
10.0%
—
39,416
110,165
23,600
33.1%
$1,151,782
4.82%
L + 1.60%
L + 1.60%
L + 1.45%
Current
Interest Annual
Rate Interest
Hedge Rate(1)
Fixed
Swap
Swap
Swap
4.82%
3.70%
3.56%
3.56%
Initial
Maturity
Date
Extended
Maturity
Date(2)
6/30/25
7/1/22
7/31/22
9/4/25
6/30/25
7/1/25
7/31/25
9/4/25
(2,349)
Total Unconsolidated Indebtedness . . .
$1,149,433
Total Unconsolidated Indebtedness
Reconciliation
Mortgages Payable, Net of Deferred
Financing Costs . . . . . . . . . . . . . .
$1,149,433
Total Unconsolidated Indebtedness . . .
Joint Venture Partner Share . . . . . . .
$1,149,433
(768,973)
Total Unconsolidated Indebtedness at
JBG SMITH Share . . . . . . . . . . .
$ 380,460
Consolidated Indebtedness at JBG
SMITH Share . . . . . . . . . . . . . . .
Unconsolidated Indebtedness at JBG
SMITH Share . . . . . . . . . . . . . . .
Stated
Interest
Rate
$2,176,784
380,460
Total Consolidated and Unconsolidated
Indebtedness at JBG SMITH Share .
$2,557,244
Total Consolidated and Unconsolidated
Indebtedness at JBG SMITH Share .
The Bartlett . . . . . . . . . . . . . . . . .
1730 M Street & 1150 17th Street . . . .
$2,557,244
(215,398)
43,529
Total Consolidated and Unconsolidated
Indebtedness at JBG SMITH Share,
before Pro Forma Adjustments . . . .
$2,385,375
Note: See the ‘‘Presentation of Information’’ on page ii for disclosure regarding at-share metrics.
(1)
LIBOR is assumed to be 0.98 percent for loans which are denoted as floating with cap or floating (no hedge).
(2)
Represents the maturity date based on execution of all extension options. Many of these extensions are subject to
lender covenant tests.
(3)
In May 2017, this loan was extended to August 26, 2017. This loan is expected to be pre-paid prior to the combination.
(4)
In May 2017, this loan was extended to April 29, 2018.
(5)
In April 2017, a term sheet was signed. The terms agreed to are reflected above.
(6)
This loan is collateralized by a portion of the 1900 N Street assemblage referred to as 1920 N Street. The remaining
portion of the property is encumbered by a separate loan.
(7)
This loan is collateralized by a portion of the 1900 N Street assemblage referred to as 1253 20th Street. The remaining
portion of the property is encumbered by a separate loan.
(8)
In April 2017, this loan was extended to May 10, 2018.
(9)
In April 2017, this loan was extended to April 21, 2020 and modified. The modified terms are reflected above.
(10)
In May 2017, a term sheet was signed to finance this asset. The terms agreed to are reflected above.
(11)
In the event the mortgage lender does not provide consent to transfer of the beneficial interests in the owner of 2121
Crystal Drive, the $141,015,000 mortgage will either be defeased or repaid with a yield maintenance premium. The
approximate cost of the defeasance or yield maintenance premium is estimated to be approximately $25,600,000.
(12)
In April 2017, a term sheet was signed to finance this asset. The terms agreed to are reflected above.
(13)
In May 2017, a term sheet was signed to refinance this asset. The terms agreed to are reflected above.
189
(14)
The mortgage loan is secured by Bowen Building ($115,630,307 principal balance and $1,638,743 accrued interest). The
mortgage will be assigned to JBG SMITH and the note will be repaid with new financing proceeds from JBG SMITH.
(15)
In May 2017, this loan was extended to May 8, 2019. The base rate for the loan is 3 month LIBOR, which was
1.15 percent as of March 27, 2017.
(16)
In May 2017, a loan was closed to finance this asset. The terms of the loan are reflected above.
(17)
In May 2017, a term sheet was signed to finance this asset. The terms agreed to are reflected above.
Our Joint Venture Arrangements
We own a significant number of our assets through joint ventures with third parties. The tables
below identify our joint venture partners, or their affiliated sponsor, and the assets that we held
through such joint ventures as of March 31, 2017 separated by those assets we expect to consolidate in
the combined company’s financial statements after the combination and those we do not expect to
consolidate.
Consolidated Joint Ventures
Asset Type
City
Submarket
Consolidated(2)(3)
Akridge
West Half III . . . . . . . . . . . . . . . . . . Multifamily Washington, DC Ballpark/Southeast
West Half II . . . . . . . . . . . . . . . . . . . Multifamily Washington, DC Ballpark/Southeast
Our
Percent
Ownership
Total
Square
Feet(1)
94.2% 211,939
94.2% 176,235
Total Akridge . . . . . . . . . . . . . . . . . . . .
388,174
Total Consolidated . . . . . . . . . . . . . . . . . .
388,174
Note: Table shown at 100 percent share.
(1)
For assets under construction and near-term development and future developments assets, represents management’s
estimate based on current design plans as of March 31, 2017.
(2)
On a pro forma basis we expect to consolidate these joint ventures in our formation transactions in accordance with
US GAAP.
(3)
We have negotiated an agreement to recapitalize Potomac Yard Land Bay G, a 758,500-square foot future development
asset in Potomac Yard (Alexandria, VA) with our joint venture partner, MRP Realty, and increase our ownership from
98.0 percent to 100.0 percent. We have also negotiated an agreement to recapitalize Fort Totten Square, a
384,316-square foot multifamily asset in Brookland/Fort Totten (Washington, DC) with our joint venture partner 1111
Property Associates, and increase our ownership from 99.4 percent to 100.0 percent.
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Unconsolidated Joint Ventures
Asset Type
Unconsolidated(2)
Landmark
L’Enfant Plaza Office—East . .
L’Enfant Plaza Office—North .
L’Enfant Plaza Office—
Southeast . . . . . . . . . . . .
L’Enfant Plaza Retail . . . . . .
Rosslyn Gateway—North . . . .
Rosslyn Gateway—South . . . .
NoBe II Office . . . . . . . . . .
11333 Woodglen Drive . . . . .
Galvan . . . . . . . . . . . . . . .
The Alaire . . . . . . . . . . . .
The Terano . . . . . . . . . . . .
NoBe II Land . . . . . . . . . .
Rosslyn Gateway—North Land
Rosslyn Gateway—South Land
Capitol Point—North . . . . . .
Capitol Point—North Option .
L’Enfant Plaza Office—Center
Courthouse Metro Land . . . .
Courthouse Metro Land—
Option . . . . . . . . . . . . .
5615 Fishers Drive . . . . . . .
12511 Parklawn Drive . . . . . .
Woodglen . . . . . . . . . . . . .
Twinbrook . . . . . . . . . . . . .
City
Submarket
Our Percent
Ownership
.
.
Office
Office
Washington, D.C.
Washington, D.C.
Southwest
Southwest
49.0%
49.0%
438,613
305,157
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Office
Office
Office
Office
Office
Office
Multifamily
Multifamily
Multifamily
Future Development
Future Development
Future Development
Future Development
Future Development
Future Development
Future Development
Washington, D.C.
Washington, D.C.
Arlington, VA
Arlington, VA
Rockville, MD
Rockville, MD
Rockville, MD
Rockville, MD
Rockville, MD
Rockville, MD
Arlington, VA
Arlington, VA
Washington, D.C.
Washington, D.C.
Washington, D.C.
Arlington, VA
Southwest
Southwest
Rosslyn
Rosslyn
Rockville Pike Corridor
Rockville Pike Corridor
Rockville Pike Corridor
Rockville Pike Corridor
Rockville Pike Corridor
Rockville Pike Corridor
Rosslyn
Rosslyn
NoMa
NoMa
Southwest
Clarendon/Courthouse
49.0%
49.0%
18.0%
18.0%
18.0%
18.0%
1.8%
18.0%
1.8%
18.0%
18.0%
18.0%
59.0%
59.0%
49.0%
18.0%
214,257
148,721
144,838
105,723
136,819
63,875
390,650
266,497
199,768
589,000
311,000
498,500
409,000
439,000
350,000
286,500
.
.
.
.
.
Future
Future
Future
Future
Future
Arlington, VA
Rockville, MD
Rockville, MD
Rockville, MD
Rockville, MD
Clarendon/Courthouse
Rockville Pike Corridor
Rockville Pike Corridor
Rockville Pike Corridor
Rockville Pike Corridor
18.0%
18.0%
18.0%
18.0%
18.0%
62,500
106,500
6,500
—
—
Development
Development
Development
Development
Development
Total Landmark . . . . . . . . . . .
CBREI Venture
Pickett Industrial Park . . . .
The Foundry . . . . . . . . . .
The Gale Eckington . . . . . .
Fairway Apartments . . . . . .
Atlantic Plumbing . . . . . . .
Stonebridge at Potomac Town
Center—Phase I . . . . . .
Stonebridge at Potomac Town
Center—Phase II . . . . . .
Stonebridge at Potomac Town
Center—Phase III . . . . .
Fairway Land . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
5,473,418
Office
Office
Multifamily
Multifamily
Multifamily
Alexandria, VA
Washington, DC
Washington, DC
Reston, VA
Washington, DC
Eisenhower Avenue
Georgetown
H Street/NoMa
Reston
U Street/Shaw
10.0%
9.9%
5.0%
10.0%
64.0%
246,145
232,745
466,716
370,850
245,527
. .
Other
Woodbridge, VA
Prince William County
10.0%
462,619
. .
Other
Woodbridge, VA
Prince William County
10.0%
65,342
. .
. .
Future Development
Future Development
Woodbridge, VA
Reston, VA
Prince William County
Reston
10.0%
10.0%
209,500
526,000
Total CBREI Venture . . . . . . . .
Canadian Pension Plan
Investment Board
The Warner . . . . . . . . . . . . .
1101 17th Street . . . . . . . . . .
2,825,444
Office
Office
Washington, DC
Washington, DC
East End
CBD
55.0%
55.0%
Total Canadian Pension Plan
Investment Board . . . . . . . . .
Forest City
Waterfront Station .
Brandywine
1250 1st Street . . .
50 Patterson Street
51 N Street . . . . .
Total
Square Feet(1)
808,873
. . . . . . . .
Future Development
Washington, DC
Southwest
. . . . . . . .
. . . . . . . .
. . . . . . . .
Future Development
Future Development
Future Development
Washington, DC
Washington, DC
Washington, DC
NoMa
NoMa
NoMa
2.5%
662,500
30.0%
30.0%
30.0%
265,000
142,000
177,000
Total Brandywine . . . . . . . . . . .
Berkshire Group
7900 Wisconsin Avenue(3) . . . .
MRP Realty
965 Florida Avenue . . . . . . . .
JP Morgan
Investment Building . . . . . . . .
593,153
215,720
584,000
Multifamily
Bethesda, MD
Bethesda CBD
50.0%
359,025
Multifamily
Washington, DC
U Street/Shaw
70.0%
334,859
Office
Washington, DC
East End
Total Unconsolidated . . . . . . . . . .
5.0%
401,520
11,449,639
Note: Table shown at 100 percent share.
(1)
For assets under construction and near-term development and future developments assets, represents management’s estimate
based on current design plans as of March 31, 2017.
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(2)
We do not anticipate consolidating these joint ventures in our financial statements following the formation transactions.
(3)
In May 2017, we recapitalized this asset and decreased our ownership from 100.0 percent to 50.0 percent.
Akridge
Through joint ventures with Akridge, we own 94.2% interests in two multifamily near-term
development assets. As the managing member of each of these ventures, we control all decisions with
respect to each asset, including sale and financing decisions.
Landmark
Through a joint venture with Landmark Realty Partners, or Landmark, which we refer to as
JBG Urban, we own interests in eight office, three multifamily and 12 future development assets. We
act as managing member of this venture and are entitled to a promoted interest if certain return
thresholds are met, in addition to our equity ownership interest. As the managing member of this
venture, we exercise day-to-day management control over the assets owned by the venture, subject to
certain customary major decision rights in favor of Landmark, which include approval over sales and
financings of the assets. The joint venture parties have certain rights to initiate the sale of the venture’s
assets.
We own an 18% interest in JBG Urban. JBG Urban owns a 10% interest in certain assets, with
the result that we own an effective 1.8% interest in those assets. With respect to certain assets, JBG
Urban’s joint venture partner is one of our investment funds, resulting in ownership by us, both directly
and indirectly through JBG Urban, of significantly more than 18% in these assets, as reflected in the
table above.
CBREI Venture
Through a joint venture with CB Richard Ellis Investors, or CBREI, we own a 5.0% interest in
The Gale Eckington multifamily asset, a 10.0% interest in the Fairway Apartments multifamily asset
and corresponding future development asset, a 9.9% interest in The Foundry office asset, a 10.0%
interest in the Pickett Industrial Park office asset, a 10.0% interest in the Stonebridge at Potomac Town
Center—Phase I retail asset and corresponding near-term development asset and future development
asset, and a 64.0% interest in the Atlantic Plumbing multifamily asset. Our 9.9% interest in The
Foundry office asset reflects an assignment of a small portion of the venture’s interest in this asset to
an unrelated third-party partner. We act as managing member of the venture and are entitled to a
promoted interest if certain return thresholds are met, in addition to our equity ownership interest. As
the managing member of each of these ventures, we exercise day-to-day management control over each
asset, subject to certain customary major decision rights in favor of CBREI, which include approval
over sales and financings of the assets. In the event of a deadlock with respect to any major decision,
either partner may exercise certain buy-sell rights with respect to the interests in the applicable venture.
Additionally, after the expiration of lock-out periods relating to each of the venture’s assets, either
partner may initiate a sale with respect to such asset.
Canada Pension Plan Investment Board
Through two joint ventures with Canada Pension Plan Investment Board, we own a 55.0%
interest in two office assets. We act as managing member, as well as the tax matters member, and
exercise day-to-day management control over the assets, subject to certain customary major decision
rights.
Forest City
Through a joint venture managed by Forest City we own a 2.5% interest in the Waterfront
Station future development asset. We are not the managing member nor do we act as the tax matters
192
partner with respect to the venture and are entitled to a promoted interest if certain return thresholds
are met. We do not have control over the day-to-day management of the asset.
Brandywine
Through joint ventures with the Brandywine Realty Trust, or Brandywine, we own 30.0%
interests in three future development assets. We act as the managing member of each of these ventures
and are entitled to a promoted interest if certain return thresholds are met with respect to each asset.
As the managing member of each of these ventures, we exercise day-to-day management control over
each asset, subject to certain customary major decision rights in favor of Brandywine, which include
approval over financings of the assets. In the event of a deadlock with respect to any major decision,
either partner may exercise certain buy-sell rights with respect to interests in the applicable venture,
other than during the construction phase for the applicable asset. Upon the earlier to occur of the
satisfaction of certain development milestones or May 2020, we and Brandywine have a right to initiate
a sale of each venture’s assets.
Berkshire
Through a joint venture with Berkshire Group, or Berkshire, we recapitalized the
7900 Wisconsin Avenue near-term development multifamily asset in May of 2017 and decreased our
interest from 100% to 50%. JBG SMITH will fund 50 percent of the equity and is the managing
member of the venture and developer of the project. Additionally, JBG SMITH is entitled to a
promote interest if certain return thresholds are met. As the managing member of the venture, we
exercise day-to-day management control over the venture, subject to our partner’s certain customary
major decision rights. The parties have a forced sale provision following stabilization with JBG SMITH
retaining a formal right of first offer. Additionally, the venture includes a traditional buy-sell provision
in the event of an impasse on major decisions.
MRP Realty
Through a joint venture with MRP Realty, we own a 70% interest in the 965 Florida Avenue
near-term development asset. MRP Realty acts as the managing member of the venture and is entitled
to a promoted interest if certain return thresholds are met with respect to the asset. As the managing
member of this venture, MRP Realty exercises day-to-day management control over the asset, subject
to customary major decision rights in our favor, which include approval over sales and financing of the
property. A buy-sell right is available with respect to major decision deadlocks. Forced sale rights are
also expected to be included in venture agreements which may be entered into in connection with the
vertical developments to be constructed on this asset.
JPMorgan
Through a joint venture with JPMorgan, we own a 5.0% interest in the Investment Building
office asset. We act as the managing general partner, as well as the tax matters partner, with respect to
the venture and are entitled to a promoted interest if certain return thresholds are met. As managing
general partner of the venture, we exercise day-to-day management control over the asset, subject to
certain customary major decision rights, which include approval over asset sales and entering into leases
over 5,000 square feet.
Wealth Capital Management
Through joint ventures with Wealth Capital Management, we own 10% interests in six office
assets. Our right to receive distributions from these ventures is subordinate to our partner’s right to
receive a preferred return and the payment to us of a deferred asset management fee. Our
subordinated position results in us having practically no economic interest in the assets of the joint
venture based on the terms of the joint venture’s operating agreement; therefore, all equity in earnings
193
of the Wealth Capital joint venture are allocated to our partner. As the managing member of each of
these ventures, we exercise day-to-day management control over each asset, subject to certain
customary major decision rights in favor of Wealth Capital Management, and receive a management
fee. In the event of a deadlock with respect to any major decision, either partner may exercise certain
buy-sell rights with respect to interests in the applicable venture, except no buy-sell right may be
exercised with respect to any asset that is undergoing material construction. Additionally, we and
Wealth Capital Management may initiate a sale of any asset at any time. We have no obligation to
contribute additional capital to the venture. Upon the sale of the venture’s assets, after repayment of
our partner’s capital and accrued preferred return, we are entitled to a deferred asset management fee,
reimbursement of certain appraisal costs, our capital, our accrued preferred return, and 80% of any
remaining residual value.
JBG Excluded Assets
Certain JBG Funds continue to own assets that will not be contributed to JBG SMITH as part
of the combination. The JBG Excluded Assets are not becoming part of our portfolio because they are
not consistent with our long-term business strategy. The JBG Excluded Assets can generally be
categorized as follows:
• Condominiums and Townhomes. The JBG Funds own a number of condominium and
townhome assets that we are not acquiring because they are not part of our long-term
strategy.
• Hotels. The JBG Funds own a number of hotels that we are not acquiring because we do not
intend for hotels to be one of our primary asset classes going forward.
• Assets Likely to be Sold in the Near-Term. The JBG Funds own certain assets that we are not
acquiring because they are under contract for sale, being marketed for sale or likely to be
marketed for sale in the near term.
• Assets Located in Non-Core Markets or Non-Metro-Served. The JBG Funds own several assets
that we are not acquiring because they are located in markets that are not core markets for
us going forward.
• Noncontrolling Joint Venture Interests. The JBG Funds own minority, noncontrolling interests
in certain joint ventures which own assets that we are not acquiring because the joint venture
partner has consent rights over the transfer of the JBG Fund’s interests and such consent is
not likely to be granted.
• Single-Tenant Leased GSA Assets. The JBG Funds own certain single-tenant leased GSA
assets that we are not acquiring because they are encumbered with long-term, hyperamortizing bond financing that results in minimal current cash flow generation and is not
consistent with our financing strategy.
Financing
Our strategy is to generally use non-recourse asset-level financing to maintain balance sheet
flexibility. We intend to strategically recycle capital from mature, lower-growth assets and redeploy it
into higher-growth, value-added opportunities and to selectively joint venture new developments.
Upon completion of the separation, we expect to assume all of the existing secured, propertylevel indebtedness related to the JBG SMITH portfolio. On a pro forma basis, JBG SMITH has
approximately $2.2 billion aggregate principal amount of consolidated debt outstanding ($2.2 billion at
our share) and our unconsolidated joint ventures had over $1.1 billion aggregate principal amount of
debt outstanding ($380 million at our share), resulting in a total of approximately $2.6 billion aggregate
principal amount of debt outstanding at our share. We will have a well-staggered debt maturity
schedule over the next five years, particularly considering our existing as-of-right extension options. We
194
will have significant liquidity upon the completion of the separation and combination with $511 million
of cash on a consolidated basis and $17 million of cash at our share of unconsolidated joint ventures,
and we are arranging a $1.4 billion credit facility under which we expect to have significant borrowing
capacity.
We look at several metrics to assess overall leverage levels, including debt to total asset value
and total debt to net operating income ratios. We expect that we may, from time to time, re-evaluate
our strategy with respect to leverage in light of the current economic conditions; relative costs of debt
and equity capital; market values of our assets; acquisition, development, and expansion opportunities;
and other factors, including meeting the taxable income distribution requirement for REITs under the
Code in the event we have taxable income without receipt of cash sufficient to enable us to meet such
distribution requirements. Our preference is to obtain fixed rate, long-term debt for our assets.
Competition
The leasing of real estate is highly competitive in the markets in which we operate. We
compete with numerous acquirers, developers, owners and operators of commercial real estate, many of
which own or may seek to acquire or develop assets similar to ours in the same markets in which our
assets are located. The principal means of competition are rent charged, location, services provided and
the nature and condition of the facility to be leased. In addition, we face competition from other real
estate companies including other REITs, private real estate funds, domestic and foreign financial
institutions, life insurance companies, pension trusts, partnerships, individual investors and others that
may have greater financial resources or access to capital than we do or that are willing to acquire assets
in transactions which are more highly leveraged or are less attractive from a financial viewpoint than
we are willing to pursue. If our competitors offer space at rental rates below current market rates,
below the rental rates we currently charge our tenants, in better locations within our markets or in
higher quality facilities, we may lose potential tenants and we may be pressured to reduce our rental
rates below those we currently charge in order to retain tenants when our tenants’ leases expire.
Seasonality
Our revenues and expenses are, to some extent, subject to seasonality during the year, which
impacts quarterly net earnings, cash flows and funds from operations, and therefore impacts
comparisons of the current quarter to the previous quarter. We have historically experienced higher
utility costs in the first and third quarters of the year.
Employees
Following the separation and the combination, we expect to have over 1,100 employees.
Insurance
Vornado maintains general liability insurance with limits of $300,000,000 per occurrence and
per property, and all-risk property and rental value insurance coverage with limits of $2.0 billion per
occurrence, with sub-limits for certain perils such as floods and earthquakes on each of Vornado’s
properties. Vornado also maintains coverage for terrorist acts with limits of $4.0 billion per occurrence
and in the aggregate, and $2.0 billion per occurrence and in the aggregate for nuclear, biological,
chemical and radiological terrorism events, as defined by the Terrorism Risk Insurance Program
Reauthorization Act, which expires in December 2020. Insurance premiums are charged directly to each
of the Washington, DC properties. JBG SMITH intends to obtain appropriate insurance coverage on its
own and coverages may differ from those noted above. Also, the resulting insurance premiums may
differ materially from amounts included in the accompanying combined financial statements. JBG
SMITH will be responsible for deductibles and losses in excess of insurance coverage, which could be
material.
195
Vornado’s mortgage loans are generally non-recourse and contain customary covenants
requiring adequate insurance coverage. Although we believe that we currently have adequate insurance
coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of
coverage at reasonable costs in the future. If lenders insist on greater coverage than JBG SMITH is
able to obtain, it could adversely affect the ability to finance or refinance the properties.
Legal Proceedings
We are from time to time involved in legal actions arising in the ordinary course of business. In
our opinion, after consultation with legal counsel, the outcome of such matters is not expected to have
a material adverse effect on our financial position, results of operations or cash flows.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, an owner of real estate
is liable for the costs of removal or remediation of certain hazardous or toxic substances on such real
estate. These laws often impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The costs of remediation or
removal of such substances may be substantial and the presence of such substances, or the failure to
promptly remediate such substances, may adversely affect the owner’s ability to sell such real estate or
to borrow using such real estate as collateral. In connection with our ownership and operation of our
assets, we may be potentially liable for such costs. The operations of current and former tenants at our
assets have involved, or may have involved, the use of hazardous materials or generated hazardous
wastes. The release of such hazardous materials and wastes could result in our incurring liabilities to
remediate any resulting contamination if the responsible party is unable or unwilling to do so. In
addition, our assets are exposed to the risk of contamination originating from other sources. While a
property owner generally is not responsible for remediating contamination that has migrated onsite
from an offsite source, the contaminant’s presence can have adverse effects on operations and
re-development of our assets.
Most of our assets have been subject, at some point, to environmental assessments that are
intended to evaluate the environmental condition of the subject and surrounding assets. These
environmental assessments generally have included a historical review, a public records review, a visual
inspection of the site and surrounding assets, screening for the presence of asbestos-containing
materials, polychlorinated biphenyls and underground storage tanks and the preparation and issuance
of a written report. Soil and/or groundwater testing is conducted at our assets, when necessary, to
further investigate any issues raised by the initial assessment that could reasonably be expected to pose
a material concern to the property or result in us incurring material environmental liabilities. They may
not, however, have included extensive sampling or subsurface investigations. In each case where the
environmental assessments have identified conditions requiring remedial actions required by law, we
have initiated the appropriate actions.
None of the environmental assessments conducted by us at the assets have revealed any
environmental liability that we believe would have a material adverse effect on our overall business,
financial condition or results of operations. Nevertheless, it is possible that these assessments do not
reveal all environmental liabilities or that there are material environmental liabilities of which we are
unaware.
Other Policies
The following is a discussion of our Investment Policies, Financing Policies, Conflicts of
Interest Policies and certain other policies. One or more of these policies may be amended or
rescinded from time to time without a shareholder vote.
196
Investment Policies
We are in the business of owning and operating office, multifamily, retail and future
development assets in high barrier-to-entry submarkets in the Washington, DC metropolitan area. We
may seek to make acquisitions in similar high barrier-to-entry markets.
Subject to REIT limitations, we may invest in the securities of other issuers in connection with
acquisitions of indirect interests in real estate. Such an investment would normally be in the form of
general or limited partnership or membership interests in special purpose partnerships and limited
liability companies that own one or more assets.
We do not base our acquisitions and investments on specific allocations by type of property. As
part of Vornado, we have historically held our assets for long-term investment. It is possible, however,
that assets in our portfolio may be sold when circumstances warrant. Further, we have not adopted a
policy that limits the amount or percentage of assets which could be invested in a specific property or
property type. While we may seek the vote of our shareholders in connection with any particular
material transaction to the extent required by applicable law, generally our activities are reviewed and
may be modified from time to time by our board of trustees without the vote of our shareholders.
Vornado and its affiliates have no input or effect upon our investment decisions, whether
through the Transition Services Agreement or otherwise, although trustees or employees of Vornado
will serve as trustees or employees of JBG SMITH.
Financing Policies
We expect to access the public and private debt and equity capital markets to raise the funds
necessary to finance operations, acquisitions, development and redevelopment opportunities, and to
refinance maturing debt. We expect that we will have to comply with customary covenants contained in
any financing agreements that could, among other things, limit our ratio of debt to total assets or
market value. We have not determined any specific leverage targets.
If our board of trustees determines to seek additional capital, we may raise such capital by
offering equity or debt securities, creating joint ventures with existing ownership interests in assets,
entering into joint venture arrangements for new acquisition and development projects, retaining cash
flows or a combination of these methods. If the board of trustees determines to raise equity capital, it
may, without shareholder approval, issue additional common shares or other shares of beneficial
interest. The board of trustees may issue shares in any manner and on such terms and for such
consideration as it deems appropriate. Such securities may be senior to the outstanding classes of
common shares. Such securities also may include additional classes of preferred shares, which may or
may not be convertible into common shares. Existing shareholders have no preemptive right to
purchase shares in any subsequent offering of our securities. Any such offering could dilute a
shareholder’s investment in us.
We expect most future borrowings would be made through JBG SMITH LP or its subsidiaries.
We might, however, incur borrowings at JBG SMITH that would be reloaned to JBG SMITH LP.
Borrowings may be in the form of bank borrowings, publicly and privately placed debt instruments, or
purchase money obligations to the sellers of assets. Any such indebtedness may be secured or
unsecured. Any such indebtedness may also have full or limited recourse to the borrower or be crosscollateralized with other debt, or may be fully or partially guaranteed by JBG SMITH LP. Although we
may borrow to fund the payment of dividends, we currently have no expectation that we will regularly
do so.
We may also finance acquisitions through the issuance of common shares or preferred shares,
the issuance of additional units of partnership interest in JBG SMITH LP, the issuance of preferred
units of JBG SMITH LP, the issuance of other securities including mortgage debt or sale or exchange
of ownership interests in assets.
197
JBG SMITH LP may also issue units to transferors of assets or other partnership interests
which may permit the transferor to defer gain recognition for tax purposes.
We do not have a policy limiting the number or amount of mortgages that may be placed on
any particular property. Mortgage financing instruments, however, usually limit additional indebtedness
on such assets. Additionally, other contracts may limit our ability to borrow and contain limits on the
amount of secured indebtedness we may incur.
Typically, we will invest in or form special purpose entities to assist us in obtaining secured
permanent financing at attractive terms. Permanent financing may be structured as a mortgage loan on
a single property, or on a group of assets, and will generally require us to provide a mortgage lien on
the property or assets in favor of an institutional third party, as a joint venture with a third party, or as
a securitized financing. For securitized financings, we may create special purpose entities to own the
assets. These special purpose entities, which are common in the real estate industry, are intended to be
structured so that they would not be consolidated in a bankruptcy proceeding involving a parent
company. We will decide upon the structure of the financing based upon the best terms then available
to us and whether the proposed financing is consistent with our other business objectives. For
accounting purposes, we will include the outstanding securitized debt of special purpose entities owning
consolidated assets as part of our consolidated indebtedness.
Conflicts of Interest Policies
Following the distribution of our common shares by Vornado, we expect to have policies
designed to reduce or eliminate potential conflicts of interest. We expect to adopt governance
guidelines governing our affairs and those of our board of trustees (the ‘‘Governance Guidelines’’), as
well as written charters for each of the standing committees of our board of trustees.
In addition, we expect to have a Code of Business Conduct and Ethics, which will apply to all
of our officers, trustees, and employees. Any transaction between us and any officer, trustee, or 5%
shareholder must be approved pursuant to the related party transaction policy we expect to adopt.
At least a majority of the members of our board of trustees and every member of our
corporate governance and nominating committee, audit committee and compensation committee must
qualify as independent under the listing standards for companies.
Certain Other Policies
We intend to make investments which are consistent with our qualification as a REIT, unless
the board of trustees determines that it is no longer in our best interests to so qualify as a REIT.
We may issue senior securities, purchase and sell investments, offer securities in exchange for
property and repurchase or reacquire shares or other securities in the future. To the extent we engage
in these activities, we will comply with applicable law. We do not currently intend to repurchase or
otherwise reacquire our common shares. We do not intend to underwrite the securities of other issuers.
We will make reports to our security holders in accordance with the NYSE rules and
containing such information, including financial statements certified by independent public accountants,
as required by the NYSE.
We do not currently have policies in place with respect to making loans to other persons (other
than our conflict of interest policies described above).
198
INDUSTRY OVERVIEW AND MARKET OPPORTUNITY
Washington, DC Metropolitan Area Market Opportunity
Unless otherwise indicated, all information in this Industry Overview and Market Opportunity
section is derived from the market study prepared for us by JLL, a nationally recognized real estate
consulting firm, and such information is included in this information statement in reliance on JLL’s
authority as an expert in such matters. JLL generally states that the information it provides has been
obtained from sources believed to be reliable, but the accuracy and completeness of the information are not
guaranteed. The forecasts and projections are based on industry surveys and JLL’s experience in the
industry, and there is no assurance that any of the projections or forecasts will be achieved. We believe that
the surveys and market research JLL has performed are reliable, but we have not independently verified this
information.
Washington, DC is one of the nation’s premier Gateway Markets (which consist of Washington,
DC, New York, San Francisco, Los Angeles and Boston), an international hub of economic activity and
the capital of the United States. The Washington, DC metropolitan area is home to an affluent and
well-educated population, featuring the highest median household income and educational attainment
of any Gateway Market in the United States. Regional growth in both traditional and ‘‘new’’ economies
has contributed to positive net migration into the Washington, DC metropolitan area since 2009. The
region’s strong growth attributes are supported by its younger residents, with a higher percentage of the
population between the ages of 25 and 34 than the overall average for Gateway Markets. In addition,
the Washington, DC metropolitan area is served by the second largest rapid transit system in the
United States, and the region is routinely ranked as one of the most walkable metropolitan areas in the
nation.
The Washington, DC metropolitan area encompasses the District of Columbia, as well as
Suburban Maryland and Northern Virginia. JBG SMITH’s portfolio of assets is concentrated in
strategic submarkets within the Washington, DC metropolitan area that share several key attributes,
including densely-populated, urban-infill, Metro-served locations with high barriers to new development
due to limited available land and/or entitlement constraints. The following sections present a summary
of JBG SMITH’s current submarkets, along with detail on their respective economic drivers,
demographics, and office and multifamily real estate markets.
The map below illustrates the constituent counties of the Washington, DC Metropolitan
Statistical Area, or MSA, as well as the counties covered by JLL’s definition of ‘‘The Market,’’ which
includes Washington, DC; Northern Virginia, encompassing Arlington County, Fairfax County, Loudoun
County, Prince William County and the cities of Alexandria, Falls Church, Fairfax, Manassas and
Manassas Park and Suburban Maryland, comprised of Montgomery, Frederick and Prince George’s
Counties. Note that real estate data quoted in this section is only for those areas within JLL’s
199
definition of the Market. Economic data refers to the Washington, DC Metropolitan Statistical Area
(MSA).
13JAN201709414281
The Washington, DC metropolitan area is one of the most stable and resilient economies and
real estate markets in the United States. The Washington, DC metropolitan area market cycle has
historically exhibited a recession-resilient tendency compared to other metro regions. During periods of
economic downturn, the federal government has provided a buffer to economic shock, as well as
stability and growth in the market.
Since 1990, the Washington, DC metropolitan area has experienced positive job growth in 23 of
26 years, with average annual job growth of 1.4%. In comparison, during the same time period, the
New York metro area experienced job growth in 20 of 26 years, with average annual job growth of
0.6%, and the San Francisco metro area has experienced job growth in 19 of 26 years, with average
annual job growth of 0.9%.
The Washington, DC metropolitan area office market has experienced positive net absorption
in 22 of the past 26 years. Over those 26 years, the office market has posted a net absorption as a
percent of inventory ratio of 2.5%, substantially higher than the U.S. ratio of 1.1% over the same time
period. Rents have also consistently followed this upward trajectory. Since 1990, there have been just
six years where rents have remained flat or declined, with the average annual growth of 2.8%.
From a multifamily perspective, demand levels have consistently increased across the
Washington, DC metropolitan area multifamily market. Since 2011, net absorption to inventory ratios
averaged 2.5%, similar to the 2.4% experienced across the United States. While rents increased at
slightly lower rates than the overall United States due to greater supply additions, asking rents across
the region have increased each year over the past decade, averaging annual growth of 3.5% from 2004
through the first quarter of 2017.
The population of the region grew by 7.6% from 2010 to 2016 compared to 4.8% nationally
over the same period, and migration to urban areas has positioned the multifamily market extremely
well over the past seven years, with many submarkets, such as NoMa, Southeast, the Rockville Pike
Corridor and Potomac Yard, emerging over that timeframe.
200
Recent Washington, DC Metropolitan Area Performance Has Bottomed and is Now Recovering
While the Washington, DC metropolitan area was historically one of the most consistent
economies and office real estate markets in the United States prior to 2007, several factors disrupted
that performance over the past eight years. From 2007 through 2010, a large speculative development
cycle in the regional office market delivered 25.3 million square feet of space to the market. With a
significant amount of speculative space delivering, vacancy rates shifted from a low of 8.1% in 2006 to
12.7% in 2010. At the same time vacant supply was added to the market, the Washington, DC
metropolitan area went into a mild recession, primarily impacting private entities such as law firms,
which gave back 4.6 million square feet of space in rightsizing efforts from 2008 through 2015. Stimulus
spending during the recession was largely responsible for initially isolating the government and its
contractors from the most acute impacts of the recession.
The Washington, DC metropolitan area was largely insulated from the national recession in
late 2009 and early 2010 with nearly 7.2 million square feet of occupancy growth in 2010 fueled by
substantial increases in government budgets, and employment as a result of stimulus funding. In fact, in
2010 the Washington, DC metropolitan area accounted for 70% of national office net absorption.
However, that growth was limited as federal deficits soared above one trillion dollars annually and
long-term debt levels reached new heights. As a result of those soaring spending levels, the federal
government shifted from investing to saving and sequestration followed. Sequestration, which mainly
impacted government contractors and federal government agencies, combined with BRAC
implementation, which shifted Department of Defense real estate from leased space to owned bases,
contributed to 5.2 million square feet of occupancy losses from 2012 through 2014, mainly in Northern
Virginia. All move-outs related to the most recent (2005-2011) round of BRAC are complete.
All of these examples point to an unusual aberration in the Washington, DC metropolitan
area’s otherwise strong historical performance. Beginning in mid-to-late 2016 and continuing into 2017,
the local economy and real estate markets, particularly the office sector, which had been lagging, have
reached bottom and are displaying signs of growth. The Washington, DC metropolitan area has seen
positive job growth for the past seven consecutive years, and year-to-date annual employment gains of
1.8% are above the national average. That job growth has translated into net absorption and modest
rent growth (1.7% year-over-year across the Washington, DC metropolitan area).
In recent years, divided government and sequestration have left the Washington, DC
metropolitan area economy and real estate market in a slow-growth environment, placing the
Washington, DC metropolitan area in a lagging position behind other Gateway Markets. Recent federal
deficits registered a quarter of the peak levels six years ago, federal employment has climbed by 4,400
jobs over the past 24 months and procurement spending levels have reached bottom with significant
increases materializing in high-growth areas such as cybersecurity. However, potential cuts to a wide
range of federal agencies and departments may stall further federal employment growth. On the whole,
shifting dynamics have helped the region to achieve job growth in excess of long-term regional and
national averages.
In 2016, regional office absorption of over 1.4 million square feet marked the first year of
overall positive net absorption for the region since 2011. Additionally, annual supply completions for
the Washington, DC metropolitan area are expected to average 4.3 million square feet from 2017 to
2019, compared to 9.0 million square feet from 2006 to 2009. With the regional economy and office
market coming off the bottom, the region’s real estate industry is uniquely positioned to experience a
stronger recovery over the next 24 to 36 months compared to other Gateway Markets.
Based on this renewed private sector demand, political alignment which historically drives
above-average growth and a supply-constrained environment, the Washington, DC metropolitan area is
expected to have several years of economic and real estate advancement ahead. With the regional
201
economy and office market now at bottom, the region’s real estate industry is uniquely positioned to
experience a stronger recovery over the next 24 to 36 months compared to comparable Gateway
Markets.
Washington, DC Metropolitan Area Overview
Economic Trends
The Washington, DC metropolitan area is the sixth largest economy in the United States, with
an annual gross metropolitan product of roughly $509 billion and a population of 6.1 million local
residents. The region has exhibited economic output growth of 40.2% since 2006, and total employment
growth of 8.1% during the same period, a rate which exceeds the broader United States employment
growth rate.
Washington, DC Metropolitan Area Employment Growth
2007-2016
DC Metro
United States (except Gateways and DC Metro)
Gateway Market Average
3.0%
2.0%
% employment change
1.0%
0.0%
+8.1%
-1.0%
DC metro area
-2.0%
+5.3%
-3.0%
United States (except
Gateways and DC
Metro)
+13.4%
-4.0%
Gateway Market
Average
-5.0%
6JUN201719382496
Source: JLL Research, Bureau of Labor Statistics
The regional economy has traditionally been driven by the core industries of government,
federal contracting, professional services, defense and engineering. The federal government has
historically acted as a stabilizing presence within the region, providing resiliency through economic
202
cycles and experiencing lower levels of employment declines compared to the average for the other
Gateway Markets, as shown in the chart below.
Employment Losses During Three Downturns: 1990 Recession (1990-1991), Tech Crash (2001-2003),
Great Recession (2008-2010)
DC Metro Area
1990 Recession
Gateway Market Average (not including DC Metro Area)
Tech Crash
Great Recession
0.0%
-0.3%
-1.0%
% Employment Change
-2.0%
-3.0%
-3.2%
-4.0%
-3.6%
-3.6%
-5.0%
-6.0%
-5.9%
-7.0%
-8.0%
-7.6%
6JUN201719115203
-9.0%
Source: JLL Research
It is expected that the recent economic contraction and stagnancy period resulting from divided
government and budget sequestration is behind the region, and recovery and growth are pushing
forward and diversifying from its traditional government base to more of a commercial base dominated
by professional and business services and high growth segments such as cybersecurity, intelligence, life
sciences and technology. Furthermore, after peaking during the stimulus years of 2010 and 2011 before
203
bottoming in 2013, federal government contract spending has been rebounding, growing by 8.7% since
2013 and by 6.3% from 2015 to 2016 alone, as shown in the chart below.
Federal Government Contract Spending in DC Metro Area
$82
$80
$78
$76
Billions
$74
$72
$70
$68
$66
$64
2016
2015
2014
2013
2012
2011
2010
2009
$60
2008
$62
6JUN201719115323
Source: JLL Research
While the region has historically benefited from government spending, the Washington, DC
metropolitan area economy is diversifying away from reliance on government expenditures and
expanding toward a broader base of private sector, non-governmental services. Federal government
output from 2000 to 2011 rose by 27.8 percent, resulting in the federal government comprising
13.3 percent of gross metropolitan product growth. Since 2011, however, federal government output has
declined by 1.45 percent—largely a result of political gridlock and sequestration—which contrasts with
a 3.9% increase in gross metropolitan product in all other sectors, with notable increases in
professional services, information (particularly cyber-technology), finance, healthcare and education.
This decoupling is emblematic of the region’s diversification and reduced reliance on the federal
government to drive business, economic and population growth. New emerging sectors have helped
propel recent job creation, and now account for the largest share of jobs created in the Washington,
DC metropolitan area. Since 2000, economic gains have been led by non-governmental sectors,
including professional and business services (+81.2%), information (+77.5%) and financial services
(+68.9%). According to the U.S. Bureau of Labor Statistics, the fastest growing industries in the
Washington, DC MSA over the past 12 months have been education and health services, professional
204
and business services, and leisure and hospitality. The fastest growing industries in the commercial
office market have been cybersecurity, life sciences and technology.
Washington, DC Metropolitan Area Economic
Growth by Industry
2000-2016
Washington, DC Metropolitan Area Current
Economic Breakdown by Industry
2000-2016
Professional and business services
Professional and business services
Information
Government
Financial activities
Education and health
Health care and social assistance
Trade, transportation and utilities
Manufacturing
Leisure and hospitality
Retail trade
Educational services
Other services
Leisure and hospitality
Financial activities
Government
Construction
DC Metro Area
42.0%
Wholesale trade
Information
Other services
Manufacturing
Transportation and warehousing
0%
10%
20%
30%
40%
50%
60%
6JUN201719115686
70%
2000-December 2016 real GDP growth (%)
80%
90%
0
100%
100
200
300
400
Employment (thousands)
500
6JUN201719115565
600
700
800
Source: JLL Research, Bureau of Economic Analysis
Source: JLL Research, Bureau of Economic Analysis
Demographic Attributes
The Washington, DC metropolitan area is one of the most affluent, well-educated and fastest
growing regions in the nation. The region features the highest median household income and
educational attainment of Gateway Markets in the United States, and from 2010 through 2016,
exhibited a higher population growth than other Gateway Markets and the national average, increasing
by 7.6% during this time.
Population Growth
2000-2016
7.6%
DC Metro Area
4.8%
United States
Gateway Market
Average
0.0%
4.5%
1.0%
2.0%
3.0%
4.0%
Source: JLL Research, Census Bureau
205
5.0%
6.0%
7.0%
9.0%
6JUN201719120174
8.0%
Median Household Income
Education Attainment
2010-2016
% 25+ With Bachelor’s Degree of Higher (2016)
$93,489
DC Metro Area
49.9%
DC Metro Area
$73,583
Gateway Market Average
41.4%
Gateway Market Average
$54,149
United States
30.4%
United States
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
6JUN201719115444
$70,000
$80,000
$90,000
$100,000
0.0%
Source: JLL Research, U.S. Census Bureau
10.0%
20.0%
30.0%
40.0%
6JUN201719115083
50.0%
60.0%
Source: JLL Research, U.S. Census Bureau
Regional growth in both traditional and ‘‘new’’ economies has contributed to positive net
migration into the Washington, DC metropolitan area since 2009. The region’s strong growth attributes
are supported by its younger residents, with the percentage of the population between the ages of 18
and 34 higher than the average for Gateway Markets. The Washington, DC metropolitan area’s appeal
to young residents is expected to continue to drive population increases over the next five years, fueling
additional demand and development for the mainly Metro-served, destination-type locations that this
young demographic prefers. One of the elements also driving that in-migration is the relative
affordability of the Washington, DC Metro region:
Average Annual Effective Rent as a Percentage of Average Household Income (%)
50%
43%
45%
40%
37%
37%
35%
30%
30%
25%
21%
20%
15%
10%
5%
0%
DC Metro Area
New York
San Francisco
Source: JLL Research, Reis, Moody’s Analytics, U.S. Census Bureau
206
Los Angeles
6JUN201719431806
Boston
Transportation and Amenities
The Washington, DC metropolitan area is served by the second-largest rapid transit system in
the United States, and the region is routinely ranked as one of the most walkable metro areas in the
nation. Reliable and efficient public transportation services are provided throughout the Washington,
DC metropolitan area by the Washington Metropolitan Area Transit Authority (WMATA), which
operates the second-busiest rail transit system and sixth-busiest bus network in the United States,
commonly known as the Metro. Currently, Metro service is provided to more than 600,000 customers
daily across 91 stations, and bus service is provided to 11,500 daily stops on 325 routes throughout the
region.
The region’s extensive public transportation system has fostered economic and population
growth, with nearly all population growth over the past five years centered near Metro stations. For
example, in Washington, DC, the highest levels of growth have centered around Metro stations.
Similarly, in Suburban Maryland, recent population growth has primarily been located around Metro
stations and in Northern Virginia, growth has been fastest near current and planned Metro stations.
This shifting population dynamic has generated competitive real estate market conditions in
submarkets near current or planned Metro stations. These Metro-served areas typically feature
heightened leasing activity, lower vacancy rates, and higher rental rates than non-Metro-served
submarkets. For example, office locations in the Washington, DC metropolitan area submarkets that
have direct access to a Metro station exhibit an average current vacancy rate of 14.5%, compared to an
average current vacancy rate of 21.3% for non-Metro-served submarkets. For the five year period
ended March 31, 2017, 76% of office leasing activity in the Washington, DC metropolitan area
(transactions larger than 20,000 square feet) has been within 0.5 miles of an existing or planned Metro
station, although only 63% of the overall market is Metro-served. Metro accessibility remains a critical
factor in site selection and is a key driver of employee recruitment and retention. Resulting rent
premiums in Metro-served submarkets average 69% for office and 32% for multifamily property types.
Over the past 15 years, the Washington, DC metropolitan area has exhibited substantial growth
in locations with greater density, transit access, walkability, a high level of retail amenities and
diversification of real estate uses. The region’s focus on mixed-use development and the widely-utilized
public transportation system make the area an attractive destination for residents and office tenants
seeking accessible places to live and work. Anchored by an urban core and suburban Metro-served core
that have both seen population increases, steady densification, and development, the Washington, DC
metropolitan area is expected to continue to be among the nation’s premier real estate markets.
Washington, DC Metropolitan Area—Office Outlook
• As of the first quarter of 2017, legislative uncertainty following the election has pushed
leasing activity levels in the Washington, DC metropolitan office market down 8.6% from
12 months ago and slowed job growth to 1.4%. However, job growth in key office-using
segments such as professional and business services has grown at more than double the
regional rate at 2.7% and key industry segments such as tech in the District of Columbia,
government contracting in Northern Virginia and life sciences in Suburban Maryland have
grown 1.3%, 2.4% and 3.4%, respectively. Recent funding legislation through FY2017
(through September 2017) is poised to spur leasing activity among the Defense and
Homeland Security contractor segment in Northern Virginia due to a 3.5% Department of
Defense increase.
• Approximately 4.3 million square feet of space will deliver annually over the next three
years, compared to an average of 3.1 million square feet annually from 2010 through 2014
and 7.9 million square feet annually from 2006 through 2010. Less than 1.3 million square
207
feet of speculative space is under construction in Northern Virginia and Suburban Maryland,
but Washington, DC has 3.8 million square feet of speculative office product underway with
preleasing levels of 36%.
• Washington, DC metropolitan area office vacancy is forecast to decline from a rate of 17%
at the end of the third quarter of 2017 to 16.7% by the end of 2017 and to 16.4% by the end
of 2018 and below 16% at the end of 2019, fueled by more than 4 million square feet of
occupancy gains over the next 24 months and more than 3 million square feet of occupancy
growth projected in 2019. Vacancy will decline steadily in Northern Virginia and Suburban
Maryland over the next 36 months, but rise in Washington, DC due to new developments
delivering.
• With the exception of non-Metro accessible markets, rents are expected to increase 4%
annually over the next 36 months with 75% of submarkets experiencing rent growth by the
third quarter of 2017. The highest rate of rent growth regionally will take place in the
Rosslyn-Ballston Corridor in Northern Virginia, followed by the Bethesda-CBD in Suburban
Maryland and Class B product downtown due to supply limitations.
Washington, DC Metropolitan Area—Multifamily Outlook
• As of the first quarter of 2017, the Washington, DC metropolitan area multifamily market
remains a high demand growth market, although the market will have to work through
pockets of new supply over the next 24 months before stabilizing in the latter part of 2018
into 2019.
• Approximately 11,101 units are under construction across the Washington, DC metropolitan
area with an expected delivery in 2017, followed by another 7,954 units delivering in 2018,
followed by 1,669 units projected in 2019. In total, the market will see approximately 20,724
units delivered over the next three years through 2019. The condo market, however, is still
far below historical delivery levels, helping to offset the large number of new rental
deliveries.
• Multifamily development has increasingly moved towards walkability to Metro, and that
trend is expected to continue. The percentage of new class A units within 0.5 miles of Metro
has increased by 1.8% annually since 2011, while non-Metro accessible areas have seen their
market share of new units decrease by 2.3% annually. Multifamily buildings on Metro
absorbed on average 4,254 units annually since 2011, while buildings off-Metro absorbed just
1,891 units annually. Class A asking rents for Metro accessible buildings have been on
average 24.1% higher than off-Metro rents since 2011.
• While demand is expected to remain strong due to increased vibrancy in the economy and
continued population growth, supply is projected to continue to outpace demand and
Washington, DC metropolitan area multifamily vacancy is projected to increase to 7.6%
through the end of 2017 and 7.8% at the end of 2018, before dropping back down to 5.9%
in 2019 as the supply pipeline diminishes. Note that multifamily projects currently in the
design and entitlement phase will not deliver until after 2019.
• Net effective rents are expected to flatten across the Washington, DC metropolitan area as
concessions increase due to increased supply, but asking rates are expected to hold and
increase over the next 36 months in the 2.7% range annually in aggregate as a result of new
construction delivering to the market at 5.0% to 10.0% premiums.
• Rent growth is projected to average 2.0% annually over the next 36 months in
Washington, DC
208
• Rent growth is projected to average 3.2% annually over the next 36 months in
Northern Virginia
• Rent growth is projected to average 2.9% annually over the next 36 months in
Suburban Maryland
JBG SMITH Submarkets Versus Other Washington, DC Metropolitan Area Submarkets
The tables below compare the submarkets JBG SMITH operates in against other Washington,
DC metropolitan area submarkets.
Office Submarket Comparison—All Classes (as of March 31, 2017)
In the office sector, as of March 31, 2017, JBG SMITH’s submarkets (excluding Crystal City/
Pentagon):
• posted current asking rents above the market average;
• had seen rent growth over the preceding 10 years far in excess of non-JBG SMITH
submarkets; and
• showed significantly lower historical and current vacancy rates than the broader market.
Washington, DC Office
Markets
JBG SMITH Submarkets excluding Crystal City/
Pentagon City(1) . . . . . . . . . . . . . . . . . . . . . .
Non-JBG SMITH Submarkets . . . . . . . . . . . . .
Crystal City/Pentagon City . . . . . . . . . . . . . . . .
Total/Wtd. Avg. . . . . . . . . . . . . . . . . . . . . . . . .
Rentable
Square Feet
.
.
.
.
.
.
.
.
162,152,857
155,339,744
11,573,684
329,066,285
Vacancy
Rate(5)
JBG SMITH Submarkets excluding Crystal City/
Pentagon City(1) . . . . . . . . . . . . . . . . . . . . . .
Non-JBG SMITH Submarkets . . . . . . . . . . . . .
Crystal City/Pentagon City . . . . . . . . . . . . . . . .
Wtd. Avg. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
14.1%
19.7%
21.0%
16.3%
(2)
Absorption
(0.2)%
0.7%
(1.8)%
0.3%
10-Year Historical
Vacancy
Average(6)
12.8%
17.7%
17.1%
13.8%
10-Year
Inventory
Growth(3)
10-Year Net
Absorption(4)
11.6%
10.3%
(4.2)%
10.4%
3.6%
(0.4)%
(9.5)%
1.2%
Rental Rates
Relative to
Market
Average(7)
10-Year
Asking
Rent
Growth(8)
26.7%
(21.8)%
(4.5)%
N/A
23.4%
7.1%
2.8%
15.8%
(1)
JBG SMITH submarkets are defined as: Rosslyn-Ballston Corridor, Reston, Bethesda-CBD/Chevy Chase,
Bethesda-Rock Spring, Rockville Pike Corridor, CBD, East End, Georgetown, NoMa/Market District, Southwest and
Alexandria (Eisenhower Avenue). Inventory includes leased office assets over 30,000 square feet, excluding medical
office buildings and owner-occupied assets. Includes Class A, B and C assets. (Crystal City/Pentagon City moved to
standalone segment for the purpose of this analysis).
(2)
Represents net change in occupied space from December 31, 2015 through March 31, 2017 as a percentage of overall
ending inventory.
(3)
Represents growth from starting inventory as of Q1 2007 to ending inventory in Q1 2017.
(4)
Represents net change in occupied space as of Q1 2007 through Q1 2017 as a percentage of overall ending inventory.
(5)
Represents percentage of inventory that is total vacant as of Q1 2017 as a share of overall inventory.
(6)
Represents 10-year average vacancy rate change through Q1 2017.
(7)
Represents weighted direct average rental rate, based on direct available square footage and per square foot, full
service, quoted asking rental rates, on an annual basis through Q1 2017 for JBG SMITH and non-JBG SMITH
submarkets compared to those for the overall blended market on a percent premium or discount basis.
209
(8)
Growth of average asking rental rates, based on direct available square footage and per square foot, full service,
quoted asking rent rates, on an annual basis over the noted period through Q1 2017.
Multifamily Submarket Comparison (as of March 31, 2017)
In the multifamily sector, as of March 31, 2017, JBG SMITH’s submarkets (excluding Crystal
City/Pentagon):
• posted asking rents that commanded a significant premium to the market average compared
to a discount in non-JBG SMITH submarkets;
• had seen rent growth over the preceding 10 years on par with Crystal City/Pentagon City and
above the non-JBG SMITH submarkets, even with inventory growth far above that seen in
non-JBG SMITH submarkets or in Crystal City/Pentagon City;
• absorbed new units over the preceding 10 years at a far greater rate than the non-JBG
SMITH submarkets. Despite a slower pace of absorption over the 10 year time period, the
Crystal City/Pentagon City market has seen a recent uptick in absorption through March 31,
2017 posting more units absorbed as a percentage of inventory than JBG SMITH or
non-JBG SMITH submarkets; and
• saw outsized inventory growth that helped to drive strong absorption performance.
Washington, DC Multifamily
Markets
JBG SMITH Submarkets excluding Crystal City/
Pentagon City(1) . . . . . . . . . . . . . . . . . . . . . .
Non-JBG SMITH Submarkets . . . . . . . . . . . . . .
Crystal City/Pentagon City . . . . . . . . . . . . . . . . .
Total/Wtd. Avg. . . . . . . . . . . . . . . . . . . . . . . . .
Units
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Absorption(2)
53,262
173,396
11,919
238,577
JBG SMITH Submarkets excluding Crystal City/Pentagon
City(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-JBG SMITH Submarkets . . . . . . . . . . . . . . . . . . . .
Crystal City/Pentagon City . . . . . . . . . . . . . . . . . . . . . . .
Wtd. Avg. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.5%
1.2%
2.8%
2.5%
10-Year
Inventory
Growth(3)
86.0%
49.6%
23.6%
53.1%
Vacancy
Rate(5)
10-Year
Vacancy
Rate
Average(6)
Rental Rates
Relative to
Market
Average(7)
8.6%
6.9%
7.0%
7.5%
7.4%
7.1%
6.6%
7.0%
14.5%
(13.6)%
0.4%
N/A
10-Year Net
Absorption(4)
76.7%
46.7%
24.2%
49.2%
10-Year PSF
Asking Rent
Growth(8)
37.8%
29.8%
33.9%
33.8%
(1)
JBG SMITH submarkets are defined as: Bethesda, Fort Totten, Logan/U Street/Shaw, NoMa/Eckington/H Street, RB
Corridor, Rockville Pike Corridor, Capitol Riverfront/Southeast, West End, Silver Spring and Reston. Inventory
includes market rate Class A apartment buildings (not including affordable) over 50 units. (Crystal City/Pentagon City
moved to standalone segment for the purpose of this analysis).
(2)
Represents net change in occupied units from December 31, 2015 through March 31, 2017 as a percentage of overall
ending inventory.
(3)
Represents growth from starting inventory as of Q1 2007 to ending inventory in Q1 2017.
(4)
Represents net change in occupied units as of Q1 2007 through Q1 2017 as a percentage of overall ending inventory.
(5)
Represents percentage of inventory that is vacant as of Q1 2017 as a share of overall inventory.
(6)
Represnts 10-year average vacancy rate change through Q1 2017.
(7)
Represents weighted average rental rate, based on available units and per square foot quoted asking rental rates, on a
monthly basis for JBG SMITH and non-JBG SMITH submarkets compared to those for the overall blended market on
a percent premium or discount basis.
(8)
Growth of average asking rental rates over the noted period through Q1 2017.
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MANAGEMENT
Executive Officers Following the Separation and the Combination
JBG SMITH will be led by W. Matthew Kelly, a managing partner of JBG, as Chief Executive
Officer and as a member of the board of trustees. Robert Stewart, a managing partner of JBG, will
serve as Executive Vice Chairman of the board of trustees. David Paul, a managing partner of JBG,
will serve as President and Chief Operating Officer. Stephen W. Theriot, the former Chief Financial
Officer of Vornado, will serve as Chief Financial Officer. James Iker, a managing partner of JBG, will
serve as Chief Investment Officer. Brian Coulter and Kai Reynolds, a managing partner and a partner,
respectively, of JBG, will serve as Co-Chief Development Officers. Patrick J. Tyrrell, Chief Operating
Officer of Vornado / Charles E. Smith, will serve as Chief Administrative Officer. Steven Museles will
serve as Chief Legal Officer. Upon completion of the separation and the combination, none of JBG
SMITH’s executive officers will be affiliated with Vornado.
W. Matthew Kelly. Mr. Kelly, age 44, will serve as our Chief Executive Officer and a member
of the board of trustees. Mr. Kelly has worked at JBG since August 2004, and has served as Managing
Partner and a member of JBG’s Executive Committee and Investment Committee since 2008. He has
been responsible for the day-to-day oversight of JBG’s investment strategy and the investment and
acquisition activity of the JBG Funds. Prior to joining JBG in August 2004, he was co-founder of
ODAC Inc., a media software company, which he helped start in March 2000, and worked in private
equity and investment banking as an analyst with Thomas H. Lee Partners in Boston from July 1998 to
July 2000, and Goldman Sachs, & Co (NYSE: GS) in New York as an Analyst from July 1996 to July
1998. Mr. Kelly received his Bachelor of Arts with honors from Dartmouth College and a Master of
Business Administration from Harvard Business School.
Mr. Kelly has been selected to serve on our board of trustees based on his experience as a
successful business leader and entrepreneur, as well as the breadth and depth of his experience in all
facets of commercial and residential real estate investment, development, and operations.
Robert Stewart. Mr. Stewart, age 55, will serve as the Executive Vice Chairman of our board of
trustees. Mr. Stewart has been with The JBG Companies since June 1988, serving as Managing Partner
and Chair of the Investment Committee, and has focused during his tenure with JBG on the
acquisition, financing and disposition of JBG investments, conceiving development plans for JBG assets
and the asset management and fundraising processes. Mr. Stewart has served as a member of JBG’s
Executive Committee since its formation. Mr. Stewart received his Bachelor of Arts from Princeton
University and a Master of Business Administration from The Wharton School of the University of
Pennsylvania.
Mr. Stewart has been selected to serve on our board of trustees based on his experience as a
successful business leader, as well as his extensive experience in all facets of commercial and residential
real estate investment, development, and operations.
David P. Paul. Mr. Paul, age 54, will serve as President and Chief Operating Officer. Mr. Paul
has over 25 years of experience in the commercial real estate industry and has worked at JBG since
September 2007, and has served as a Managing Partner and member of JBG’s Executive Committee
since January 2015, Management Committee since June 2012 and Investment Committee since January
2008. He began his career with the consulting firm Bain & Company in April 1985, before moving into
commercial and retail real estate development and investment with several firms, including Trammell
Crow Company (June 1989 - March 2009), Starwood Urban Investments (April 1999 - February 2000),
and WP Commercial and Archon Group (August 2001 - September 2007), a subsidiary of Goldman,
Sachs & Co (NYSE: GS), and has been involved in both domestic and international real estate
investment. He received his Bachelor of Arts from Vanderbilt University and Master of Business
Administration from The Tuck School of Business at Dartmouth.
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Stephen W. Theriot. Mr. Theriot, age 57, will serve as our Chief Financial Officer. Mr. Theriot
has worked at Vornado since June 2013 serving as Chief Financial Officer from June 2013 to February
2017 and was responsible for Vornado’s accounting, financial reporting and tax activities. Following the
separation, Mr. Theriot will no longer be a Vornado employee. From November 1987 to May 2013,
Mr. Theriot worked at Deloitte & Touche LLP, where he was a Partner and most recently served as the
leader of the Northeast Real Estate practice. Mr. Theriot graduated from the University of North
Carolina at Chapel Hill with a Bachelor of Science degree in Business Administration.
James Iker. Mr. Iker, age 44, will serve as Chief Investment Officer. Mr. Iker has worked at
JBG since July 2002, and has served as a Managing Partner and a member of JBG’s Executive
Committee and Investment Committee since 2008. He has more than 20 years of experience in the real
estate industry and has been responsible for various aspects of investment strategy, acquisitions,
dispositions, and financing activity for the JBG Funds. Prior to joining JBG in July 2002, he co-founded
and managed Costa Mesa Realty Group, a real estate investment firm in Orange County, California.
Mr. Iker received his Bachelor of Science from the University of Phoenix and a Master of Business
Administration, with honors, from The Wharton School of the University of Pennsylvania.
Brian Coulter. Mr. Coulter, age 57, will serve as our Co-Chief Development Officer.
Mr. Coulter joined JBG in March 1986. He is a Managing Partner and has served as a member of
JBG’s Executive Committee and Investment Committee since their formation. Mr. Coulter has over
30 years of real estate industry experience. During his tenure he has focused primarily on managing
pre-development and development activities, as well as areas of value creation through more effective
asset management. With the sale of a significant portion of JBG’s commercial portfolio and two
operating companies to a public real estate company, Mr. Coulter served as a Managing Director of
the mid-Atlantic region of the acquiring company from February 1998 to April 1999. He is also a
founding member and board member of the Downtown DC and Rosslyn business improvement
districts. He returned to JBG in April 1999. He is a past Board Member and President of Rosslyn
Renaissance. He received his Bachelor of Arts, Summa Cum Laude, Phi Beta Kappa from Rutgers
College and a Master of Business Administration from Harvard Business School.
Kai Reynolds. Mr. Reynolds, age 47, will serve as our Co-Chief Development Officer.
Mr. Reynolds joined JBG in May 2003 and is a JBG partner, serves on the Management Committee
and is responsible for overseeing the development group. Mr. Reynolds has over 20 years of real estate
experience. Prior to joining JBG, he worked in development for Gables Residential (May 2001 - May
2003) and prior to that worked in corporate finance for JP Morgan in New York (August 2000 - May
2001). Mr. Reynolds received his Bachelor of Arts from the University of Western Ontario and a
Master of Business Administration from the University of North Carolina’s Kenan-Flagler Business
School.
Patrick J. Tyrrell. Mr. Tyrrell, age 56, will serve as our Chief Administrative Officer.
Mr. Tyrrell has served as the Chief Operating Officer of Vornado / Charles E. Smith since April 2003,
with responsibility for overseeing the division’s day-to-day operations. Following the separation,
Mr. Tyrell will no longer be a Vornado employee. Mr. Tyrrell joined Vornado from the Kaempfer
Company, where he also served as Chief Operating Officer. Mr. Tyrrell has more than 25 years of
experience in commercial real estate, including asset and property management, leasing and sales. Prior
to joining the Kaempfer Company in October 2001, Mr. Tyrrell was Director of Operations for the
Mid-Atlantic Region for Insignia/ESG (July 1996 - September 2001), where he was responsible for
overseeing all operational aspects of Insignia’s three offices in the Mid-Atlantic Region. Mr. Tyrrell
previously served as Operations Manager for Insignia’s Property Services Group. During a prior tenure
with Kaempfer (January 1993 - July 1996), Mr. Tyrrell served as a Senior Asset Manager, where he was
responsible for the management and leasing of Kaempfer’s portfolio of Class A, downtown office space
in Washington, DC. He is currently a member of BOMA’s National Advisory Council (NAC) and of the
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Industry Advisory Board for the Virginia Tech Program in Real Estate. Mr. Tyrrell graduated from
Boston College with a Bachelor of Science degree in Economics and Political Science and received his
Master’s degree in International Affairs from George Washington University.
Steven Museles. Mr. Museles, age 54, will serve as Chief Legal Officer and Corporate
Secretary. Prior to joining JBG in March 2017, Mr. Museles served as Chief Legal Officer and Chief
Compliance Officer of Alliance Partners (August 2013 - March 2017), a credit-focused asset
management firm. Prior to joining Alliance Partners, Mr. Museles served in several capacities at
CapitalSource Inc. (NYSE: CSE), a specialty finance company, including member of the Board of
Directors (January 2010 - April 2014), Co-Chief Executive Officer (January 2010 - December 2011) and
Chief Legal Officer and Secretary (August 2000 - December 2009). Prior to joining CapitalSource, he
practiced corporate and securities law as a partner at Hogan Lovells. Mr. Museles received his
Bachelor of Arts from the University of Virginia and Juris Doctor from the Georgetown University
Law Center.
Board of Trustees Following the Combination
Under Maryland law, the business and affairs of JBG SMITH will be managed under the
direction of its board of trustees. JBG SMITH’s declaration of trust and bylaws, as amended and
restated prior to the separation, will provide that the number of trustees may be fixed by the board of
trustees from time to time but may not be fewer than the number required by the Maryland REIT law,
which is currently one, nor more than 15. We currently expect that, upon the consummation of the
combination, our board of trustees will consist of 12 members, a majority of whom we expect to satisfy
the independence standards established by the Sarbanes-Oxley Act and the applicable rules of the SEC
and the NYSE. Upon completion of the combination, only two trustees of JBG SMITH, Steven Roth
and Mitchell Schear, will be affiliated with Vornado, and only three trustees, W. Matthew Kelly, Robert
Stewart and Michael Glosserman, will be affiliated with JBG.
The following table sets forth information with respect to those persons who are expected to
serve on JBG SMITH’s board of trustees following the completion of the combination. We expect that
Vornado will name one additional nominee prior to the separation and the combination.
Name
Steven Roth . . . . . . . . . .
W. Matthew Kelly . . . . . .
Alan S. Forman . . . . . . . .
William J. Mulrow . . . . . .
Ellen Shuman . . . . . . . . .
Scott A. Estes . . . . . . . . .
Charles E. Haldeman, Jr.
Carol A. Melton . . . . . . .
Michael Glosserman . . . .
Mitchell Schear . . . . . . . .
Robert Stewart . . . . . . . .
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Age
Title
75
44
51
61
61
46
68
62
71
58
54
Chairman of the Board of Trustees
Trustee and CEO
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Executive Vice Chairman of the Board of Trustees
Set forth below is biographical information about the expected trustees identified above that
are not also executive officers of ours, as well as a description of the specific skills and qualifications
such candidates are expected to provide to JBG SMITH’s board of trustees.
Steven Roth. Mr. Roth has been the Chairman of the Board of Trustees of Vornado since May
1989 and Chairman of the Executive Committee of the Board since April 1980. From May 1989 until
May 2009, Mr. Roth served as Vornado’s Chief Executive Officer, and has been serving as Chief
Executive Officer again from April 15, 2013 until the present. Following the separation, Mr. Roth will
213
continue to be the Chairman of the Board of Trustees and Chief Executive Officer of Vornado. He is a
co-founder and Managing General Partner of Interstate Properties since September 1968. He has also
served as the Chief Executive Officer and Chairman of the Board of Alexander’s, Inc. since March
1995 and May 2004, respectively, and has served as a trustee of Urban Edge Properties since the
completion of its spin-off from Vornado in January 2015. Mr. Roth was a director of J. C. Penney
Company, Inc. (a retailer) from February 2011 until September 2013. Mr. Roth is a graduate of DeWitt
Clinton High School in the Bronx. He received his AB degree from Dartmouth College and a Master
of Business Administration degree with Highest Distinction from The Tuck School of Business at
Dartmouth.
Mr. Roth has been selected to serve on our board of trustees based on his 48 years of
experience in all facets of commercial and residential real estate investment, development and
operations.
Alan S. Forman. Mr. Forman serves as a Director of Investments at the Yale University
Investments Office, the team charged with managing the University’s $25 billion endowment fund.
Mr. Forman joined the Investments Office in October 1990 as a Senior Financial Analyst and has
served as a Director of Investments since October 1997. In October 1992 and October 1994, he was
promoted to Senior Associate and Associate Director, respectively. Mr. Forman also serves on the
Board of Directors of Stemline Therapeutics, where he is the chair of the nominating and corporate
governance committee and a member of the Audit and Compensation Committees. Mr. Forman served
on the Board of Trustees of Acadia Realty Trust (NYSE: AKR), where he served as Chairman of the
Compensation Committee and was a member of the Nominating and Corporate Governance
Committee. Mr. Forman also served on the Board of Directors of Kimpton Group Holdings, which was
ultimately sold to Intercontinental Hotels Group. He served on the Compensation and Nominating and
Governance Committees at Kimpton Group Holdings. Mr. Forman received a Bachelor of Arts from
Dartmouth College and a Master of Business Administration from the Stern School of Business at New
York University.
Mr. Forman has been selected to serve on our board of trustees based on his experience
overseeing real estate investments for Yale University’s endowment and, in that capacity, his
longstanding investment relationship with the JBG Funds.
William J. Mulrow. Mr. Mulrow has served as a senior advisor to Blackstone since May 2017.
From January 2015 to April 2017, Mr. Mulrow served as Secretary to Andrew M. Cuomo, Governor of
the State of New York. Prior to his service in the Governor’s office, Mr. Mulrow worked as a Senior
Managing Director at Blackstone (April 2011 – January 2015), an alternative asset manager.
Mr. Mulrow has also worked in senior positions at Paladin Capital Group, Citigroup (NYSE: C),
Rothschild and Donaldson, Lufkin and Jenrette Securities Corporation. Mr. Mulrow has served in a
number of academic posts including the Board of Advisors for the Taubman Center for State and Local
Government at the Harvard University John F. Kennedy School of Government and on the Board of
the Maxwell School of Citizenship and Public Affairs at Syracuse University. Mr. Mulrow received a
B.A., Cum Laude, from Yale University and an M.P.A. from the Harvard University John F. Kennedy
School of Government.
Mr. Mulrow has been selected to serve on our board of trustees based on his more than 30
years of experience in business, government and politics.
Ellen Shuman. Since August 2013, Ms. Shuman has served as the Managing Partner of
Edgehill Endowment Partners, an endowment and foundation investment management firm. Prior to
founding Edgehill Endowment Partners, Ellen served as Vice President and Chief Investment Officer of
Carnegie Corporation of New York, a philanthropic foundation, from January 1999 to July 2011.
Ms. Shuman served as the Director of Investments of the Yale Investment Office, which manages the
214
endowment of Yale University, from 1986 to 1998. Ms. Shuman served as a trustee of Bowdoin College
from 1992 to 2013 and as an investment advisor, trustee, and investment committee chair of the Edna
McConnell Clark Foundation from 1998 to 2013. Ms. Shuman served as a board member of The
Investment Fund for Foundations from 2000 to 2009. Ms. Shuman received her Bachelor of Arts
degree, Magna Cum Laude, from Bowdoin College and received an M.P.P.M. from the Yale University
School of Management.
Ms. Shuman has been selected to serve on our board of trustees based on her experience in
the management of investments for endowments and foundations.
Scott A. Estes. Since January 2009, Mr. Estes has served as the Executive Vice President and
Chief Financial Officer of Welltower, Inc. (NYSE: HCN), a real estate investment trust focused on
healthcare infrastructure. Mr. Estes joined Welltower Inc. in April 2003 from Deutsche Bank Securities,
a financial firm, where he served as Senior Equity Analyst and Vice President from January 2000 to
April 2003. Mr. Estes received his Bachelor of Arts from the College of William and Mary.
Mr. Estes has been selected to serve on our board of trustees based on his financial and
business experience as Chief Financial Officer of a large real estate investment trust.
Charles E. Haldeman, Jr. From July 2009 to June 2012, Mr. Haldeman served as the Chief
Executive Officer of the Federal Home Loan Mortgage Corporation, a public government-sponsored
enterprise that operates in the U.S. secondary mortgage market. Mr. Haldeman joined the Federal
Home Loan Mortgage Corporation from Putnam Investments, where he served as President and Chief
Executive Officer from November 2003 to June 2008 and Chairman from June 2008 to June 2009.
Since 2012, Mr. Haldeman has served as a member of the Board of Directors of S&P Global
(NYSE: SPGI), including as the Non-Executive Chairman since April 2015. Mr. Haldeman has also
served as the Non-Executive Chairman of KCG Holdings (NYSE: KCG) since November 2013 and as a
director of DST Systems (NYSE: DST) since November 2014. Mr. Haldeman received his BA from
Dartmouth College, Summa Cum Laude, a Master of Business Administration from Harvard Business
School, where he graduated with high distinction as a Baker Scholar, and a Juris Doctor from Harvard
Law School.
Mr. Haldeman has been selected to serve on our board of trustees based on his managerial
experience, in particular his experience overseeing the Federal Home Loan Mortgage Corporation’s
strategy, operating plans and financial goals.
Carol A. Melton. Since June 2005, Ms. Melton has served as Executive Vice President for
Global Public Policy at Time Warner (NYSE: TWX), a multinational media and entertainment
company. In her role at Time Warner, Ms. Melton is responsible for overseeing the company’s policy
activities worldwide. Ms. Melton joined Time Warner from Viacom (NASDAQ: VIAB), where she
served as Executive Vice President for Government Relations from June 1997 to June 2005.
Ms. Melton is a member of the Council on Foreign Relations and serves on the Board of Directors and
as First Vice President of the Economic Club of Washington, DC. Ms. Melton is also a trustee of the
Phillips Collection and a Director of Halcyon and Georgetown Heritage. Ms. Melton received her B.A.
degree from Wake Forest University, an M.A. from the University of Florida and a Juris Doctor from
the Washington College of Law at American University.
Ms. Melton has been selected to serve on our board of trustees based on her experience in
strategic oversight of policy-related activities for global businesses.
Michael Glosserman. Mr. Glosserman has worked at JBG since March 1979, and he has served
as a Managing Partner and Chair of JBG’s Executive Committee since 2008. He began his career as a
staff attorney with the U.S. Department of Justice in March 1971, before moving into commercial real
estate investment and development in various senior positions with the Rouse Company between March
215
1972 and March 1979. He joined JBG in March 1979. He currently serves on the board of directors of
the CoStar Group (NASDAQ: CSGP), a provider of information, analytics and marketing services to
the commercial real estate industry in the United States and United Kingdom. He received his
Bachelor of Science in Economics from The Wharton School at the University of Pennsylvania and his
Juris Doctor from the University of Texas Law School.
Mr. Glosserman has been selected to serve on our board of trustees based on his 45 years of
experience in all facets of commercial and residential real estate investment, development, and
operations.
Mitchell Schear. Mr. Schear has served as President of Vornado / Charles E. Smith since April
2003. Following the separation, Mr. Schear will no longer be a Vornado employee. Prior to joining
Vornado in April 2003, Mr. Schear spent 15 years at the Kaempfer Company, where, as President, he
oversaw all of the company’s development, leasing and management activities. Mr. Schear has served
on a number of boards on behalf of the real estate industry and the community, including The
Washington Convention and Sports Authority; Executive Committee of the Federal City Council; the
Downtown DC Business Improvement District; the Economic Club of Washington DC; the Corporate
Board of Arena Stage; and is currently Board Chair of Higher Achievement. He also serves on the
Governor’s Advisory Council on Revenue Estimates for the Commonwealth of Virginia. Mr. Schear has
a B.A. from Hobart College, and earned his MBA at George Washington University.
Mr. Schear has been selected to serve on our board of trustees based on his 35 years of
experience in commercial and residential real estate investment, development and operations, in
particular his 14 years of experience and knowledge with respect to the Vornado Included Assets.
Election of Trustees
At the time of the combination, JBG SMITH expects that the board of trustees will be
increased to consist of the trustees set forth above plus one additional trustee to be named by Vornado,
who will be divided as equally as possible into three separate classes. The initial terms of the first,
second and third classes will expire at the first, second and third annual meetings of shareholders,
respectively, held following the separation and the combination. Initially, shareholders will elect only
one class of trustees each year. Shareholders will elect successors to trustees of the first class for a
two-year term and successors to trustees of the second class for a one-year term, in each case upon the
expiration of the terms of the initial trustees of each class. Commencing with the 2020 annual meeting
of shareholders, each trustee shall be elected annually for a term of one year and shall hold office until
the next succeeding annual meeting and until a successor is duly elected and qualifies.
Under our bylaws, as amended and restated prior to the separation, a plurality of all the votes
cast at a meeting of shareholders duly called and at which a quorum is present will be sufficient to
elect a trustee. Notwithstanding such vote requirement, our Governance Guidelines will provide that
any nominee in an uncontested election who does not receive a greater number of ‘‘for’’ votes than
‘‘withhold’’ votes shall be elected as a trustee but shall promptly tender his or her offer of resignation
to the board of trustees following certification of the vote. The Corporate Governance and Nominating
Committee shall consider the offer to resign and shall recommend to the board of trustees the action
to be taken in response to the offer, and the board of trustees shall determine whether or not to accept
such resignation. The board of trustees shall promptly disclose its decision and the reasons therefor in
a Current Report on Form 8-K furnished to the SEC. At such time as our board of trustees ceases to
be classified, our board of trustees will amend our bylaws to provide that a majority of all the votes
cast at a meeting of shareholders duly called and at which a quorum is present shall be required to
elect a trustee, unless the election is contested, in which case a plurality shall be sufficient.
216
Trustee Compensation
Following the completion of the separation and the combination, trustees who are not officers
of JBG SMITH will receive an annual retainer. Non-management members of the board of trustees
will be compensated as follows: (1) each such member will receive an annual cash retainer equal to
$100,000; (2) each such member will receive an annual equity grant with a value equal to $100,000,
either in the form of restricted shares with a one-year vesting period or restricted LTIP units (not to be
sold while such member is a trustee, except in certain circumstances); (3) the Chairman of the Audit
Committee will receive an annual cash retainer of $25,000; (4) the Chairman of each of the
Compensation Committee and the Corporate Governance and Nominating Committee will receive an
annual cash retainer of $15,000; (5) each member of the Audit Committee will receive an annual cash
retainer of $10,000; and (6) each member of each of the Compensation Committee and the Corporate
Governance and Nominating Committee will receive an annual cash retainer of $5,000. Following the
closing of the combination, non-management members of the board of trustees will also receive a
one-time equity grant with a value of $250,000 that will be fully vested upon grant but subject to
transfer restrictions during the period of the trustee’s service on the board.
In addition to his compensation for services as a non-management member of the board of
trustees, Mr. Schear is party to a consulting agreement with JBG SMITH with respect to his services to
JBG SMITH as a consultant that provides for certain payments and benefits for a period up to two
years after the closing of the combination. See ‘‘Certain Relationships and Related Person
Transactions—Consulting Agreement’’. With respect to certain additional benefits provided to
Mr. Glosserman under his transition agreement with JBG Properties, Inc., see ‘‘Certain Relationships
and Related Person Transactions—Continuation Agreement’’.
Trustee Independence
A majority of JBG SMITH’s board of trustees will at all times be comprised of trustees who
are ‘‘independent’’ as defined by the rules of the NYSE and the Governance Guidelines that will be
adopted by the board of trustees. Our board of trustees is expected to establish categorical standards to
assist it in making its determination of trustee independence. For relationships that are either not
covered by or do not satisfy the categorical standards, the determination of whether the relationship is
material and therefore whether the trustee qualified as independent or not, may be made by the
Corporate Governance and Nominating Committee or the board of trustees. JBG SMITH shall explain
in the annual meeting proxy statement immediately following any such determination the basis for any
determination that a relationship was immaterial despite the fact that it did not meet the categorical
standards adopted by the board of trustees.
Committees of the Board of Trustees
Effective upon the completion of the combination, JBG SMITH’s board of trustees will have
the following three standing committees: an Audit Committee, a Compensation Committee and a
Corporate Governance and Nominating Committee. Our bylaws and the MTA will require that, for the
two years following the combination, to the extent practicable, the membership of each of the Audit
Committee, Compensation Committee, and Corporate Governance and Nominating Committee shall
consist of an equal number of Vornado Board Designees and JBG Board Designees (or their respective
replacement designees).
Audit Committee. Charles Haldeman and William Mulrow are expected to be the members of
the board of trustees’ Audit Committee, and Scott Estes is expected to be the Chairman of the
committee. Each of the members of the Audit Committee will be independent, as defined by the rules
of the NYSE, Section 10A(m)(3) of the Securities Exchange Act of 1934, the rules and regulations of
the SEC, and in accordance with the company’s Governance Guidelines. The Audit Committee’s
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purposes are to (i) assist the board of trustees in its oversight of (a) the integrity of our financial
statements, (b) our compliance with legal and regulatory requirements, (c) the independent registered
public accounting firm’s qualifications and independence, and (d) the performance of the independent
registered public accounting firm and the company’s internal audit function; and (ii) prepare an Audit
Committee report as required by the SEC for inclusion in our annual proxy statement. The primary
function of the Audit Committee is oversight. The company’s management is responsible for the
preparation, presentation and integrity of its financial statements and for the effectiveness of internal
control over financial reporting. Management is responsible for maintaining appropriate accounting and
financial reporting principles and policies and internal controls and procedures that provide for
compliance with accounting standards and applicable laws and regulations. The independent registered
public accounting firm is responsible for planning and carrying out a proper audit of the company’s
annual financial statements, reviewing its quarterly financial statements prior to the filing of each
Quarterly Report on Form 10-Q and annually auditing the effectiveness of internal control over
financial reporting and other procedures. The Audit Committee shall consist of no fewer than three
members, and at least one member of the Audit Committee must qualify as a ‘‘financial expert’’ as
defined by the SEC. In addition, this committee will meet as often as it determines, but not less
frequently than quarterly.
Compensation Committee. Alan Forman, Scott Estes, and William Mulrow are expected to be
the members of the board of trustees’ Compensation Committee, and Carol Melton is expected to be
the Chairman of the committee. Each of the members of the Compensation Committee will be
independent, as defined by the rules of the NYSE, the rules and regulations of the SEC, and in
accordance with the company’s Governance Guidelines. The Compensation Committee is responsible
for establishing the terms of the compensation of the executive officers and the granting and
administration of awards under any company share plans. Compensation decisions for our executive
officers are made by the Compensation Committee. Decisions regarding compensation of other
employees are made by our chief executive officer and are subject to review and approval of the
Compensation Committee. Compensation decisions for our trustees are made by the Compensation
Committee and/or the board of trustees.
The agenda for meetings of the Compensation Committee is determined by its Chairman with
the assistance of the company’s Secretary and/or other members of management. Compensation
Committee meetings are attended from time to time by members of management at the invitation of
the Compensation Committee. The Compensation Committee’s Chairman reports the committee’s
determination of executive compensation to the board of trustees. The Compensation Committee has
authority under its charter to elect, retain and approve fees for, and to terminate the engagement of,
compensation consultants, special counsel or other experts or consultants as it deems appropriate to
assist in the fulfillment of its responsibilities. The Compensation Committee reviews the total fees paid
by us to outside consultants to ensure that such consultants maintain their objectivity and independence
when rendering advice to the committee. The Compensation Committee may receive advice from
compensation consultants, special counsel or other experts or consultants only after consideration of
relevant factors related to their fees, services and potential conflicts of interests, as outlined in the
Compensation Committee’s Charter.
The Compensation Committee may, in its discretion, delegate all or a portion of its duties and
responsibilities to a subcommittee of the committee. In particular, the Compensation Committee may
delegate the approval of certain transactions to a subcommittee consisting solely of members of the
committee who are (i) ‘‘Non-Employee Directors’’ for the purposes of SEC Rule 16b-3; and
(ii) ‘‘outside directors’’ for the purposes of Section 162(m) of the Code. Currently, all members of the
Compensation Committee are expected to meet these criteria. The Compensation Committee shall
consist of no fewer than two members. In addition, this committee will meet at least once annually, or
more frequently as circumstances may dictate.
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Corporate Governance and Nominating Committee. Ellen Shuman, Charles Haldeman and
are expected to be the members of the board of trustees’ Corporate Governance
and Nominating Committee, and Alan Forman is expected to be the Chairman of the committee. Each
of the members of the Corporate Governance and Nominating Committee will be independent, as
defined by the rules of the NYSE, the rules and regulations of the SEC, and in accordance with the
company’s Governance Guidelines.
The Corporate Governance and Nominating Committee’s responsibilities include the selection
of potential candidates for the board of trustees and the development and review of our Governance
Guidelines. It also reviews trustee compensation and benefits, and oversees annual self-evaluations of
the board of trustees and its committees. The committee also makes recommendations to the board of
trustees concerning the structure and membership of the other committees of the board of trustees, as
well as management succession plans. The committee selects and evaluates candidates for the board of
trustees in accordance with the criteria set out in the company’s Governance Guidelines and as are set
forth below. The committee is then responsible for recommending to the board of trustees a slate of
candidates for trustee positions for the board of trustees’ approval.
The Corporate Governance and Nominating Committee will consist of at least one member. In
addition, this committee will meet at least once annually, or more frequently as circumstances may
dictate.
Compensation Committee Interlocks and Insider Participation
During the company’s fiscal year ended December 31, 2016, JBG SMITH was not an
independent company, and did not have a Compensation Committee or any other committee serving a
similar function.
Corporate Governance
Shareholder Recommendations for Trustee Nominees
JBG SMITH’s bylaws will contain provisions that address the process by which a shareholder
may nominate an individual to stand for election to the board of trustees. JBG SMITH expects that the
board of trustees will adopt a policy concerning the evaluation of shareholder recommendations of
board candidates by the Corporate Governance and Nominating Committee. See ‘‘Certain Provisions of
Maryland Law and of Our Declaration of Trust And Bylaws—Advance Notice of Trustee Nominations
and New Business’’ for more information about shareholder nominations.
Governance Guidelines
The board of trustees is expected to adopt Governance Guidelines in connection with the
separation to assist the board of trustees in guiding JBG SMITH’s governance practices. These
practices will be regularly re-evaluated by the Corporate Governance and Nominating Committee in
light of changing circumstances in order to continue serving JBG SMITH’s best interests and the best
interests of its shareholders.
Communicating with the Board of Trustees
JBG SMITH’s Governance Guidelines will include procedures by which shareholders and other
interested parties may communicate with JBG SMITH’s independent trustees by calling a phone
number. A recording of each phone call will be sent to one member of the Audit Committee, as well as
to a member of management who may respond to any such call if the caller provides a return number.
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Trustee Qualification Standards
JBG SMITH’s Governance Guidelines will provide that the Corporate Governance and
Nominating Committee is responsible for recommending to the board of trustees a slate of trustees or
one or more nominees to fill vacancies occurring between annual meetings of shareholders.
The process that this committee will use to identify a nominee to serve as a member of the
board of trustees will depend on the qualities being sought, but the board of trustees should, based on
the recommendation of the Corporate Governance and Nominating Committee, select nominees
considering the following criteria: (i) personal qualities and characteristics, accomplishments and
reputation in the business community; (ii) current knowledge and contacts in the communities in which
JBG SMITH does business and in JBG SMITH’s industry or other industries relevant to JBG SMITH’s
business; (iii) ability and willingness to commit adequate time to board and committee matters; (iv) the
fit of the individual’s skills and personality with those of other trustees and potential trustees in
building a board that is effective, collegial and responsive to the needs of the company; and
(v) diversity of viewpoints, experience and other demographics.
The Corporate Governance and Nominating Committee will consider the criteria described
above in the context of an assessment of the perceived needs of the board of trustees as a whole and
seek to achieve diversity of occupational and personal backgrounds on the board of trustees. The board
will be responsible for selecting candidates for election as trustees based on the recommendation of the
Corporate Governance and Nominating Committee.
Policies on Business Ethics
In connection with the combination, JBG SMITH will adopt a Code of Business Conduct and
Ethics (the ‘‘code of conduct’’) that requires all its business activities to be conducted in compliance
with laws, regulations, and ethical principles and values. All trustees, officers and employees of JBG
SMITH will be required to read, understand and abide by the requirements of the code of conduct.
The code of conduct will be accessible on JBG SMITH’s website on the investor relations page.
Any amendment to, or waiver from, a provision of the code of conduct may be granted only by JBG
SMITH’s general counsel. Waivers involving any of the company’s executive officers or trustees may be
made only by the Corporate Governance and Nominating Committee of JBG SMITH’s board of
trustees or by the board of trustees itself, and all waivers granted to executive officers and trustees will
be disclosed promptly as required by the rules and regulations of the SEC and the NYSE. JBG
SMITH’s general counsel, who will be responsible for overseeing, administering, and monitoring the
code of conduct, will report to the chief executive officer with respect to all matters relating to the
code of conduct.
Procedures for Treatment of Complaints Regarding Accounting, Internal Accounting Controls, and
Auditing Matters
In accordance with the Sarbanes-Oxley Act of 2002, JBG SMITH expects that its Audit
Committee will adopt procedures for the receipt, retention and treatment of complaints regarding
accounting, internal accounting controls and auditing matters and to allow for the confidential,
anonymous submission by employees and others of concerns regarding questionable accounting or
auditing matters.
Policy on Trustee Attendance at Annual Meetings of Shareholders
Members of the board of trustees will not be required to attend the annual meeting of
shareholders. Instead, the choice of whether or not to attend will be left to each individual trustee.
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COMPENSATION DISCUSSION AND ANALYSIS
This section presents information concerning compensation arrangements for the persons
whom JBG SMITH expects will be its named executive officers as of the separation. As noted above,
JBG SMITH is currently part of Vornado and not an independent company, and the Compensation
Committee has not yet been formed. Once the Compensation Committee is formed, compensation
decisions for JBG SMITH’s named executive officers following the separation will be made by the
Compensation Committee.
Named Executive Officers
The individuals listed below are expected to serve as named executive officers of JBG SMITH
following completion of the separation. The individuals listed below, along with the other individuals
who may serve as named executive officers, are collectively referred to as ‘‘the NEOs.’’
• W. Matthew Kelly—Chief Executive Officer
• Robert Stewart—Executive Vice Chairman
• David P. Paul—President and Chief Operating Officer
• Stephen W. Theriot—Chief Financial Officer
• James L. Iker—Chief Investment Officer
Additional information about our expected NEOs following the separation is set forth in
‘‘Management—Executive Officers Following the Separation and the Combination.’’
2017 Compensation Opportunities
The following table sets forth on an annualized basis for 2017 the annual base salary and other
compensation expected to be payable to each of our NEOs in accordance with their employment
agreements. See ‘‘Employment Agreements’’ below for a summary of these agreements. Because our
NEOs will not become officers until the separation, compensation information is not available for prior
periods. In addition, no compensation will be paid by us in 2017 to our executive officers prior to the
completion of the separation.
Base Salary
W. Matthew Kelly
Chief Executive Officer . . . . . . . . . . .
Robert Stewart
Executive Vice Chairman . . . . . . . . .
David P. Paul
President and Chief Operating Officer
Stephen W. Theriot(3)
Chief Financial Officer . . . . . . . . . . .
James L. Iker
Chief Investment Officer . . . . . . . . . .
Target Bonus(1)
100%
2017 Target
Equity Grant(2)
Formation
Unit Grant
$3,500,000
$7,400,000
$2,000,000
$5,500,000
.....
$750,000
.....
$500,000
.....
$625,000
100%
$2,000,000
$6,250,000
.....
$550,000
100%
$1,000,000
$4,000,000
.....
$500,000
100%
$1,250,000
$6,000,000
N/A
(1)
Amounts represent a percentage of annual base salary.
(2)
‘‘2017 Equity Grant’’ amounts will consist of 50% LTIP Units and 50% OPP Units (as those
terms are defined below). The value of 2017 OPP Units is stated assuming performance is met
at the target level. The value of the 2017 OPP Units that will be granted assumes the
maximum level of performance, which for Mr. Kelly is $3,500,000; for Mr. Stewart is
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$2,000,000; for Mr. Paul is $2,000,000; for Mr. Theriot is $1,000,000; and for Mr. Iker is
$1,250,000.
(3)
Until the separation, Mr. Theriot is party to an employment agreement with Vornado.
JBG SMITH Compensation Programs Following the Separation
Although executive compensation determinations following the separation will be made by the
Compensation Committee, we expect that the primary objectives of JBG SMITH’s executive
compensation will be to (1) attract and retain the most talented executives in our industry; (2) motivate
executives to achieve corporate performance objectives as well as individual goals; and (3) align the
interests of our executives with those of our shareholders. To fulfill these objectives, we also expect that
we will have an executive compensation program that includes three major elements—base salary,
annual bonus incentives and long-term equity incentives, which may include stock options, restricted
stock or partnership unit awards and performance-based equity awards. Other than the employment
agreements, equity incentive plan and initial equity grants, which are described below, JBG SMITH has
not adopted any compensation policies, procedures or plans with respect to NEO compensation and
any such determinations remain subject to the review and approval of the Compensation Committee.
Employment Agreements
JBG SMITH has entered into, or prior to the closing of the combination will enter into,
employment agreements with each of the NEOs, and the material terms of their employment
agreements are described below. The following summary does not contain all the terms of these
agreements.
Term. Each employment agreement is effective as of the closing of the combination. For each
NEO, the initial term of his employment expires on the third anniversary of the closing of the
combination, subject to automatic one-year renewals, unless 180 days’ prior written notice of
non-renewal is provided by either party or the NEO is earlier terminated or resigns.
Base Salary, Target Bonus and Benefits. The employment agreements provide for annual base
salaries and target cash bonuses for each of the NEOs, as set forth in the table above. Each NEO’s
employment agreement provides that his base salary is subject to review at least annually for possible
increase, but not decrease. In addition, each NEO will be entitled to participate in benefit plans and
programs of JBG SMITH as are made available to JBG SMITH’s senior level executives or to its
employees generally.
2017 Equity Grants. As soon as reasonably practicable after the closing of the combination,
each NEO will receive an equity grant under the 2017 Plan, in the form of long-term incentive
partnership units (‘‘LTIP Units’’) and outperformance plan units (‘‘OPP Units’’), in a number of awards
determined based on the values in the table above and the value of a JBG SMITH common share on
the NYSE. The target value of each grant will be comprised of 50% LTIP Units (the ‘‘2017 LTIP
Units’’), and 50% OPP Units (the ‘‘2017 OPP Units’’). The 2017 LTIP Units will vest in equal annual
installments on the first through fourth anniversaries of the closing of the combination, subject to
continued employment with JBG SMITH through each vesting date. The 2017 OPP Units (if earned
pursuant to the terms and conditions of the award agreement) will vest 50% on each of the third and
fourth anniversaries of the closing of the combination, subject to continued employment with JBG
SMITH. The 2017 OPP Units may be earned between 0-2 times the target level reflected in the table
above based on the achievement of certain financial goals. The 2017 LTIP Units and 2017 OPP Units
may, in each case, vest earlier upon certain employment terminations as described below. For further
information on LTIP Units and OPP Units, see ‘‘Partnership Agreement—Compensatory Partnership
Units’’.
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Initial Formation Awards. On or as soon as reasonably practicable after the closing of the
combination, each NEO will receive an award of Formation Units (as defined below in ‘‘—Initial
Equity Grants’’) (each, an ‘‘Initial Formation Award’’), in the form of profits interests that provide for
a share of appreciation above the fair market value on the grant date, equal to the values in the table
above (with the number of awards determined based on the value of a JBG SMITH common share on
the NYSE). The Initial Formation Awards will vest 25% on each of the third and fourth anniversaries,
and 50% on the fifth anniversary, of the closing of the combination, subject to continued employment
with JBG SMITH through each vesting date. For further information on the Formation Units, see
‘‘—Initial Equity Grants’’ and ‘‘Partnership Agreement—Other Partnership Units—Formation Units’’.
Severance. The employment agreements provide for certain benefits in the event of
termination without ‘‘cause’’ or resignation for ‘‘good reason’’ (each, a ‘‘covered termination’’),
including enhanced benefits upon a covered termination that occurs following the execution of a
definitive agreement the consummation of which would result in, or within two years following, a
change in control of JBG SMITH (a ‘‘change in control termination’’). Any NEO who experiences a
covered termination will be entitled to (i) cash payments equal to one times the sum of the NEO’s base
salary and target bonus (or, on a change in control termination, three times for Mr. Kelly and two
times for the other NEOs), (ii) a pro rata bonus, (iii) health care continuation for 18 months (or, on a
change in control termination, two years), (iv) certain equity vesting benefits as described below, and
(v) any unpaid annual bonus for the year preceding the year of termination if the relevant
measurement period for such bonus concluded prior to the termination date. On a covered termination
that is not a change in control termination, any outstanding unvested portion of the NEO’s Initial
Formation Award and any LTIP Units or other equity awards without performance conditions will vest,
and for any OPP Units and other performance-based awards, a pro rata portion of the awards
scheduled to vest on the next vesting date will vest. On a change in control termination, all outstanding
unvested equity-based awards (including the NEO’s Initial Formation Award) will vest. In addition, on
either a covered termination or a change in control termination, vested stock options held by the
terminated NEO and any vested and unconverted portion of the NEO’s profits interests will
respectively remain exercisable or convertible for 60 days following termination (or, if earlier, for the
remainder of the term of the option or the profits interest award).
For purposes of the employment agreements:
‘‘Cause’’ generally means the NEO’s (i) conviction of, or plea of guilty or nolo contendere to, a
felony; (ii) willful and continued failure to use reasonable best efforts to substantially perform his or
her duties (other than such failure resulting from the NEO’s incapacity due to physical or mental
illness) that such NEO fails to remedy to the reasonable satisfaction of JBG SMITH within 30 days
after JBG SMITH’s written notice of such failure; or (iii) willful misconduct that is materially
economically injurious to JBG SMITH.
‘‘Good reason’’ generally means: (i) a reduction in base salary or target annual bonus, (ii) a
material diminution in position, authority, duties or responsibilities or the assignment of duties
materially and adversely inconsistent with such NEO’s position as provided under such NEO’s
employment agreement; (iii) a relocation of employment to a location outside of the Washington, DC
metropolitan area; or (iv) JBG SMITH’s material breach of any provision of his or her employment
agreement or any equity agreement with such NEO, which will be deemed to include (x) the NEO’s
not holding the title prescribed under the employment agreement, (y) failure of a successor to JBG
SMITH to assume the employment agreement and (z) such NEO no longer reporting directly to JBG
SMITH’s chief executive officer (or, in the case of Mr. Kelly, the board of trustees of JBG SMITH).
Net-Better Cutback. If any payments to an NEO would constitute ‘‘parachute payments’’ within
the meaning of Section 280G of the Code, and would cause such NEO to become subject to the excise
tax imposed under section 4999 of the Code, then such payments will be reduced to the amount that
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would not cause such NEO to be subject to the excise tax if such a reduction would put such NEO in a
better after-tax position than if such NEO were to pay the excise tax.
Restrictive Covenants. Each NEO is subject to a perpetual non-disclosure covenant, a
non-competition covenant through the later of the third anniversary of the closing of the combination
and the first anniversary of the date such NEO’s employment terminates for any reason, and a
non-solicitation of employees and consultants covenant through the later of the third anniversary of the
closing of the combination and the second anniversary of the date such NEO’s employment terminates
for any reason.
Effects of the Separation on Outstanding Vornado Equity-Based Compensation Awards
Mr. Theriot and certain other current Vornado employees that are expected to become JBG
SMITH employees after the separation hold Vornado equity awards that were granted in connection
with their employment with Vornado. The Vornado Compensation Committee has determined to treat
equity awards granted to these employees in the following manner: (a) for awards of stock options,
restricted stock and/or restricted units, the vesting of awards will be accelerated so that all awards will
vest as of the date of the consummation of the separation and providing for one-time cash payments to
compensate employees for the value of the unexpired terms of their options, and (b) for awards under
Vornado’s outperformance plans (which we refer to as the ‘‘OPP awards’’), will treat the transaction as
a special dividend and will treat service with JBG SMITH or one of its affiliates as continued service
with Vornado or one of its affiliates.
JBG SMITH 2017 Omnibus Share Plan
Prior to the separation, the 2017 Omnibus Share Plan (the ‘‘2017 Plan’’) will be adopted with
terms substantially as set forth below.
Purpose. The purpose of the 2017 Plan is to promote the financial interests of JBG SMITH
by encouraging employees and certain non-employee trustees, advisors and consultants to acquire an
ownership position in JBG SMITH, enhancing its ability to attract and retain employees, non-employee
trustees and consultants of outstanding ability and providing such persons with a way to acquire or
increase their proprietary interest in JBG SMITH’s success.
Shares Available for Grant. Awards with respect to a maximum of approximately 10,335,300
JBG SMITH common shares may be granted under the 2017 Plan, subject to adjustment as described
below. If an award expires or is forfeited, terminated, cancelled, settled in cash or paid in cash in lieu
of JBG SMITH common shares, then the JBG SMITH common shares underlying such award will
again become available for grant. Exercise of a stock option or a stock appreciation right reduces the
JBG SMITH common shares available for grant by the gross number of shares for which the award is
exercised, even if the award is exercised by means of a net-settlement exercise procedure. Awards that
are settled in cash and awards issued or assumed in connection with any merger, consolidation,
acquisition of property or stock, reorganization or similar transaction will not count against the number
of JBG SMITH common shares that may be granted under the 2017 Plan. No more than approximately
10,335,300 JBG SMITH common shares (subject to adjustment as described below) may be issued upon
the exercise of incentive stock options, and the maximum aggregate number of JBG SMITH common
shares for which any performance-based award may be granted to an Employee in any period of 12
consecutive months is approximately 2,583,800.
Adjustment of and Changes in Shares. In the event of any change in the number of
outstanding JBG SMITH common shares by reason of any share dividend or split, reverse split,
recapitalization, merger, consolidation, spin-off, combination or exchange of JBG SMITH common
shares or other corporate change, or any distributions to shareholders other than regular cash
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dividends, the Compensation Committee will make such substitution or adjustment, if any, as it deems
equitable to (i) the number of share equivalents for which awards may be granted under the 2017 Plan,
(ii) the number or kind of JBG SMITH common shares or other securities issued or reserved for
issuance pursuant to outstanding awards, (iii) the individual participant limitations and (iv) the number
of JBG SMITH common shares that can be issued through incentive stock options, with certain
limitations.
Administration. The Compensation Committee will administer and interpret the 2017 Plan.
The Compensation Committee is authorized to select participants to receive awards and determine the
type of awards to be made, the number of equity-based securities subject to any award and the other
terms and conditions of such awards. JBG SMITH’s board of trustees, in its sole discretion, also may
grant awards or administer the 2017 Plan.
Eligibility. Awards may be granted to employees of JBG SMITH and non-employee trustees
and consultants that provide bona fide services to JBG SMITH, as determined by the JBG SMITH
Compensation Committee. As such criteria are subjective in nature, JBG SMITH cannot accurately
estimate the number of persons who may be included in the class of employees or consultants eligible
to receive awards from time to time. Currently, all our non-employee trustees are eligible to receive
awards under the 2017 Plan from time to time.
Transfer Restrictions. Awards are not assignable or transferable except by will or the laws of
descent and distribution, and no right or interest of any holder may be subject to any lien, obligation or
liability of the holder. The Compensation Committee may determine, at the time of grant or thereafter,
that an award (other than an award of incentive stock options) is transferable by a holder to such
holder’s immediate family members (or trusts, partnerships or limited liability companies established for
such immediate family members).
Term; Amendment and Termination. The 2017 Plan will be effective upon the separation and
has a term of ten years from the separation date. The Compensation Committee may amend or
terminate the 2017 Plan at any time, except that shareholder approval is required for amendments that
(i) increase the maximum aggregate number of JBG SMITH common shares issuable under the 2017
Plan, (ii) materially modify the eligibility requirements, (iii) result in a material increase in the benefits
accrued to participants, (iv) reduce the exercise price of outstanding stock options or stock appreciation
rights or cancel outstanding stock options or stock appreciation rights in exchange for cash, other
awards or stock options or stock appreciation rights with an exercise price that is less than the exercise
price of the original stock options or stock appreciation rights, or (v) require shareholder approval to
comply with any applicable laws, regulations or rules. If there is a change in applicable tax law such
that OPP Units become taxable to the holder of such OPP Units as ordinary income, JBG SMITH LP
may cause the OPP Units to be restructured and/or substituted for other awards to permit a tax
deduction to JBG SMITH LP or JBG SMITH while preserving substantially similar pre-tax economics
to the holder of such OPP Units.
Types of Awards. Eligible participants may be granted awards of stock options, stock
appreciation rights, performance shares, restricted shares, other stock-based awards and operating
partnership units. These awards include equity awards intended to qualify as ‘‘performance-based
compensation’’ within the meaning of Section 162(m) of the Code.
Stock Options. Stock options entitle the holder to purchase JBG SMITH common shares at a
per share price determined by the Compensation Committee, which in no event may be less than the
fair market value of the JBG SMITH common shares on the date of grant. Options may be either
incentive stock options (within the meaning of Section 422 of the Code) or non-qualified stock options.
Stock options are exercisable for such period as is determined by the Compensation Committee, but in
no event may options be exercisable after 10 years from the date of grant. The 2017 Plan does not
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provide for the grant of ‘‘reload stock options’’ (meaning, if a grantee were to pay the applicable
exercise price in JBG SMITH common shares already owned, the grantee would automatically be
granted a new option in the amount of the surrendered JBG SMITH common shares).
Stock Appreciation Rights. Stock appreciation rights entitle the holder to receive from JBG
SMITH an amount equal to the amount by which the fair market value of a JBG SMITH common
share on the date of exercise exceeds the grant price. The Compensation Committee will establish the
grant price, which may not be less than the fair market value of the JBG SMITH common shares on
the date of grant, and is authorized to determine whether a stock appreciation right will be settled in
cash, JBG SMITH common shares or a combination thereof.
Performance Shares and Restricted Shares. Performance share awards consist of a grant of
actual JBG SMITH common shares or ‘‘share units’’ (which may be settled in cash, JBG SMITH
common shares or a combination thereof as determined by the Compensation Committee) having a
value equal to an identical number of JBG SMITH common shares in amounts determined by the JBG
SMITH Compensation Committee at the time of grant. Performance share awards consisting of actual
JBG SMITH common shares may provide the holder with dividends and voting rights prior to vesting.
Performance share awards entitle the holder to receive the value of such award based upon
performance conditions and over a performance period as determined by the Compensation Committee
at the time of grant.
Restricted share awards consist of a grant of actual JBG SMITH common shares or share units
having a value equal to an identical number of JBG SMITH common shares. Restricted share awards
consisting of actual JBG SMITH common shares provide the holder with dividends and voting rights
prior to vesting. The employment or other conditions and the length of the period for vesting of
restricted share awards are established by the Compensation Committee at the time of grant.
Other Stock-Based Awards. Other types of equity-based or equity-related awards, including
the grant or offer for sale of unrestricted JBG SMITH common shares and performance stock and
performance units settled in JBG SMITH common shares or cash, may be granted under such terms
and conditions as may be determined by the Compensation Committee.
OP Units. Operating partnership unit awards consist of a grant of limited partnership units
(‘‘OP Units’’) of JBG SMITH LP (or any successor entity), the entity through which JBG SMITH will
conduct substantially all its business, and can be granted either as free-standing awards or in tandem
with other awards under the 2017 Plan and are valued by reference to the value of a JBG SMITH
common share. The employment conditions, the length of the period for vesting and other applicable
conditions and restrictions of OP Unit awards, including computation of financial metrics and/or
achievement of pre-established performance goals, are established by the JBG SMITH Compensation
Committee. Such OP Unit awards may provide the holder with dividend-equivalent rights prior to
vesting. OP Units also include Formation Units (see ‘‘—Initial Equity Grants’’ and ‘‘Partnership
Agreement—Other Partnership Units—Formation Units’’).
Performance Goals. The performance goals will be based on one or more of the following
business criteria (either separately or in combination) with regard to JBG SMITH (or a subsidiary,
division, other operational unit or administrative department of JBG SMITH): (i) pre-tax income,
(ii) after-tax income, (iii) net income (meaning net income as reflected in JBG SMITH’s financial
reports for the applicable period, on an aggregate, diluted and/or per share basis), (iv) operating
income, (v) cash flow, (vi) earnings per share, (vii) return on equity, (viii) return on invested capital or
assets, (ix) cash and/or funds available for distribution, (x) appreciation in the fair market value of JBG
SMITH common shares, (xi) return on investment, (xii) total return to shareholders, (xiii) net earnings
growth, (xiv) stock appreciation (meaning an increase in the price or value of the JBG SMITH
common shares after the date of grant of an award and during the applicable period), (xv) related
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return ratios, (xvi) increase in revenues, (xvii) net earnings, (xviii) changes (or the absence of changes)
in the per share or aggregate market price of the JBG SMITH common shares, (xix) number of
securities sold, (xx) earnings before any one or more of the following items: interest, taxes, depreciation
or amortization for the applicable period, as reflected in JBG SMITH’s financial reports for the
applicable period, (xxi) total revenue growth (meaning the increase in total revenues after the date of
grant of an award and during the applicable period, as reflected in JBG SMITH’s financial reports for
the applicable period), (xxii) total shareholder return, (xxiii) funds from operations, as determined and
reported by JBG SMITH in its financial reports and (xxiv) increase in net asset value per JBG SMITH
common share.
The performance criteria may be based upon the attainment of specified levels of performance
under one or more of the measures described above relative to the performance of other REITs or the
historic performance of JBG SMITH. To the extent permitted under Section 162(m) of the Code, the
Compensation Committee may (i) designate additional business criteria on which the performance
criteria may be based or provide for objectively determinable adjustments, modifications or
amendments or (ii) provide for objectively determinable adjustments, modifications or amendments, in
accordance with generally accepted accounting principles or practices, to the performance criteria for
one or more of the items of gain, loss, profit or expense determined to be extraordinary or unusual in
nature or infrequent in occurrence, related to the disposal of a segment of a business, related to a
change in accounting principles, related to discontinued operations that do not qualify as a segment of
a business and attributable to the business operations of any acquired entity, as applicable.
Under the transition rules under Section 162(m) of the Code for subsidiaries that become
publicly held corporations (including by spin-off), the compensation we pay to a ‘‘covered employee’’
within the meaning of Section 162(m) will not be subject to the deduction limitations under
Section 162(m) prior to the first regularly scheduled meeting of our shareholders that occurs more than
12 months after the separation. After such transition period ends, depending upon how JBG SMITH
structures its compensation and its management functions, compensation JBG SMITH pays to its
named executive officers may not be subject to limitation under Section 162(m) of the Code to the
extent such compensation is attributable to services rendered to the operating partnership. In the past,
the Internal Revenue Service has issued a series of private letter rulings that indicate that
compensation paid by an operating partnership to named executive officers of a REIT that serves as its
general partner is not subject to limitation under Section 162(m) of the Code to the extent such
compensation is attributable to services rendered to the operating partnership.
Vesting. The Compensation Committee will determine the time or times at which awards
become vested, unrestricted or may be exercised, subject to the following limitations. Subject to
accelerated vesting in the event of an actual change in control or a grantee’s involuntary termination,
retirement, disability or death, (i) full value awards (i.e., awards with a value equivalent to a full JBG
SMITH common share or OPP Unit) with time-based vesting will be subject to a minimum three-year
vesting period (with no more than one-third of the JBG SMITH common shares subject thereto vesting
earlier than a date 60 days prior to the first anniversary of the date on which such award is granted
and on each of the next two anniversaries of such initial vesting date) and (ii) full value awards with
performance-based will have a performance period that ends no earlier than 60 days prior to the first
anniversary of the commencement of the period over which performance is evaluated. Notwithstanding
the foregoing, a maximum of 5% of the maximum aggregate number of JBG SMITH common shares
available under the 2017 Plan in respect of full value awards can be subject to full value awards without
regard to the minimum vesting limits in the preceding sentence, and any full value awards granted in
connection with the separation will not be subject to the minimum vesting limits in the preceding
sentence or be counted against the aforementioned 5% exception to the minimum vesting limits.
Change in Control. Upon a change in control of JBG SMITH, a participant’s award will be
treated as set forth in the applicable award agreement, or, in the case of OP Units, will also be
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governed by the limited partnership agreement. However, the Compensation Committee may take one
or more of the following actions, to the extent it determines Section 409A of the Code permits such
action: (i) settle awards for cash or securities (with any out-of-the-money stock options or stock
appreciation rights canceled for no consideration), (ii) provide for the assumption of or the issuance of
substitute awards that substantially preserve the terms of the affected awards, (iii) modify awards to
add events, conditions or circumstances (including termination of employment within a specified period
after a Change in Control) upon which the vesting of such awards or lapse of restrictions thereon will
accelerate, (iv) deem any performance conditions satisfied at target, maximum or actual performance
through closing or provide for the performance conditions to continue, or (v) provide that stock options
or stock appreciation rights will become fully exercisable for a period of at least 20 days prior to the
change in control, and that any stock options or stock appreciation rights not exercised within this
period will terminate upon change in control.
Clawback. Awards granted under the 2017 Plan will be subject to the requirement that the
awards be repaid to JBG SMITH after they have been distributed to the participant (i) to the extent
set forth in the 2017 Plan or an award agreement or (ii) to the extent the participant is, or in the
future becomes, subject to any JBG SMITH clawback or recapture policy, including any such policy
that is adopted to comply with the requirements of any applicable laws, or any applicable laws which
impose mandatory recoupment, under circumstances set forth in such applicable laws.
Material United States Income Tax Consequences
Below is a brief summary of the principal U.S. federal income tax consequences of the 2017
Plan under current law. This summary is not intended to be exhaustive and does not describe, among
other things, state, local or foreign income, withholding and payroll tax matters, and other tax
consequences. The specific tax consequences to a participant will depend on that participant’s
individual circumstances.
Incentive Stock Options. Upon the grant or exercise of an incentive stock option, no income
will be recognized by the optionee for federal income tax purposes, and JBG SMITH will not be
entitled to any deduction. If the JBG SMITH common shares acquired upon exercise are not disposed
of within the one-year period beginning on the date of the transfer of the JBG SMITH common shares
to the optionee, nor within the two-year period beginning on the date of the grant of the option, any
gain or loss realized by the optionee upon the disposition of such JBG SMITH common shares will be
taxed as long-term capital gain or loss. In such event, no deduction will be allowed to JBG SMITH. If
such JBG SMITH common shares are disposed of within the one-year or two-year periods referred to
above, the excess of the fair market value of the JBG SMITH common shares on the date of exercise
(or, if less, the fair market value on the date of disposition) over the exercise price will be taxable as
ordinary income to the optionee at the time of disposition, and JBG SMITH will be entitled to a
corresponding deduction. The amount by which the fair market value of the JBG SMITH common
shares at the time of exercise of an incentive stock option exceeds the option price will constitute an
item of tax preference that could subject the optionee to the alternative minimum tax. Whether the
optionee will be subject to such tax depends on the facts and circumstances applicable to the individual.
Non-Qualified Stock Options. Upon the grant of a non-qualified stock option, no income will
be realized by the optionee, and JBG SMITH will not be entitled to any deduction. Upon the exercise
of such an option, the amount by which the fair market value of the JBG SMITH common shares at
the time of exercise exceeds the exercise price will be taxed as ordinary income to the optionee, and
JBG SMITH will be entitled to a corresponding deduction. All option grants to non-employee trustees
and consultants are treated as non-qualified options for federal income tax purposes.
Stock Appreciation Rights. Upon the grant of a stock appreciation right, no taxable income
will be realized by the holder, and JBG SMITH will not be entitled to any tax deduction. Upon the
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exercise of a stock appreciation right, the amount by which the fair market value of the JBG SMITH
common shares at the time of exercise exceeds the grant price will be taxed as ordinary income to the
holder, and JBG SMITH will be entitled to a corresponding deduction.
Performance Shares and Restricted Shares. A participant will not be subject to tax upon the
grant of a restricted share unit, or upon the grant of actual restricted JBG SMITH common shares,
unless such participant makes the election referred to below. Upon the vesting date (the date of lapse
of the applicable forfeiture conditions or transfer restrictions, in the case of share awards and, in the
case of share unit awards, the date of vesting and distribution of the shares and/or cash underlying the
share units), the participant will recognize ordinary income equal to the fair market value of the shares
and/or cash received (less any amount such participant may have paid for the shares), and JBG SMITH
generally will be entitled to a deduction equal to the amount of income recognized by such participant.
In the case of an award of actual restricted JBG SMITH common shares, if any dividends are paid on
such common shares prior to the vesting date, they will be includible in a participant’s income during
the restricted period as additional compensation (and not as dividend income).
A participant may elect to recognize immediately, as ordinary income, the fair market value of
actual restricted JBG common shares (less any amount paid for the shares) at date of grant, without
regard to applicable forfeiture conditions and transfer restrictions. This election is referred to as a
Section 83(b) election. If a participant makes this election, the holding period will begin the day after
the date of grant, dividends paid on the shares will be subject to the normal rules regarding
distributions on stock and no additional income will be recognized by such participant upon the vesting
date. However, if a participant forfeits the restricted shares before the vesting date, no deduction or
capital loss will be available to that participant (even though the participant previously recognized
income with respect to such forfeited shares). In the event that the shares are forfeited by such
participant, JBG SMITH generally will include in its income the amount of its original deduction.
OP Units. OP Unit awards will be structured to qualify as ‘‘profits interests’’ for federal
income tax purposes, meaning that, under current law, no income will be recognized by the recipient
upon grant or vesting, and JBG SMITH will not be entitled to any deduction. As profits interests, OP
Units would not initially have full parity with common limited partnership units with respect to
liquidating distributions, but upon the occurrence of specified events could over time achieve such
parity and thereby accrete to an economic value equivalent to JBG SMITH common shares on a
one-for-one basis. However, there are circumstances under which such parity would not be reached, in
which case the value of an OP Unit award would be reduced. If OP Units are not disposed of within
the one-year period beginning on the date of grant of the OP Unit award, any gain (assuming the
applicable tax elections are made by the grantee) realized by the recipient upon disposition will be
taxed as long-term capital gain. OP Units also include Formation Units (see ‘‘—Initial Equity Grants’’
and ‘‘Partnership Agreement—Other Partnership Units—Formation Units’’).
Disposition of Shares. Unless stated otherwise above, upon the subsequent disposition of JBG
SMITH common shares acquired under any of the preceding awards, the participant will recognize
capital gain or loss based upon the difference between the amount realized on such disposition and the
participant’s basis in the JBG SMITH common shares, and such amount will be long-term capital gain
or loss if such JBG SMITH common shares were held for more than 12 months.
Additional Medicare Tax. Participants are subject to a 3.8% tax on the lesser of (i) the
participant’s ‘‘net investment income’’ for the relevant taxable year and (ii) the excess of the
participant’s modified adjusted gross income for the taxable year over a certain threshold (between
$125,000 and $250,000, depending on the participant’s circumstances). A participant’s net investment
income generally includes dividend income and net gains from the disposition of JBG SMITH common
shares. Participants are urged to consult their tax advisors regarding the applicability of this Medicare
tax to their income and gains in respect of their investment in JBG SMITH common shares.
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Section 409A. If an award is subject to Section 409A of the Code, but does not comply with
the requirements of Section 409A of the Code, the taxable events as described above could apply
earlier than described, and could result in the imposition of additional taxes and penalties. Participants
are urged to consult with their tax advisors regarding the applicability of Section 409A of the Code to
their awards.
Initial Equity Grants
Pursuant to the 2017 Plan and the partnership agreement, certain employees of JBG SMITH
will be eligible to receive initial equity-based awards, which may include awards based on interests in
JBG SMITH LP. Additionally, in order to attract and retain talented executives and to link
compensation to shareholder returns, initial ‘‘appreciation-only’’ equity grants will be made in
connection with the consummation of the combination to certain JBG Properties and Vornado
employees with an aggregate value equal to approximately $100 million (with the number of awards
determined based on the value of a JBG SMITH common share on the NYSE), who in each case are
intended to become trustees, employees or members of the management team of JBG SMITH in
connection with the combination. Such awards, which we refer to as the ‘‘Formation Units,’’ include the
Initial Formation Awards to be issued to the NEOs, as described above. The Formation Units will be
special limited partnership interests in JBG SMITH LP, structured in a manner intended to qualify as
‘‘profits interests’’ for federal income tax purposes. The value of a Formation Unit will be tied to the
appreciation of a common share of JBG SMITH commencing from the date of grant. The Formation
Units will be issued under the terms of the partnership agreement and the 2017 Plan. The Formation
Units will generally vest 25% on each of the third and fourth anniversaries of the date of grant, and
50% on the fifth anniversary of the date of grant, subject to continued employment (with accelerated
vesting upon the grantee’s ‘‘retirement,’’ death or ‘‘disability,’’ or the termination of the grantee’s
employment with JBG SMITH or its affiliate without ‘‘cause’’ or by the grantee for ‘‘good reason,’’
each as defined in the applicable award agreement). For further information on the Formation Units,
see ‘‘Partnership Agreement—Other Partnership Units—Formation Units’’.
In connection with entry into the MTA, in addition to the grants of Formation Units described
above, the compensation committee of the Vornado board of trustees approved a letter agreement
dated October 31, 2016 (the ‘‘Letter Agreement’’) pursuant to which Steven Roth, Vornado’s Chairman
and Chief Executive Officer, will be entitled to receive, in connection with his service on the board of
trustees of JBG SMITH, and contingent on the closing of the combination, a grant of Formation Unit
awards with an aggregate value equal to $6,500,000 (with the number of awards determined based on
the value of a JBG SMITH common share on the NYSE). The award of Formation Units to be
granted to Mr. Roth will have the same general terms as the Formation Units to be granted to
employees of JBG SMITH described above. The above description is qualified in its entirety by
reference to the terms of the Letter Agreement between JBG SMITH and Mr. Roth and the form of
Non-Employee Trustee Formation Unit Agreement attached thereto, which are filed as an exhibit to
the registration statement on Form 10 of which this information statement is a part.
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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Related Person Transactions
On an annual basis, each trustee and executive officer will be required to complete a trustee
and officer questionnaire which requires disclosure of any transactions with us in which the trustee or
officer, or any member of his or her immediate family, has an interest. Pursuant to the Audit
Committee charter, the Audit Committee must review and approve or ratify all related person
transactions in accordance with the policies of the company in effect from time to time. The Audit
Committee’s charter will be available on the corporate governance section of JBG SMITH’s website:
JBGSMITH.com.
Registration Rights Agreements
In connection with the MTA, we are obligated to enter into a registration rights agreement
with the JBG Parties and JBG designees receiving JBG SMITH common shares in the combination
(the ‘‘Shares Registration Rights Agreement’’) and a separate registration rights agreement with the
JBG Parties and JBG designees receiving JBG SMITH LP common limited partnership units in the
combination (the ‘‘Units Registration Rights Agreement’’ and together with the Shares Registration
Rights Agreement, the ‘‘Registration Rights Agreements’’).
Under the Shares Registration Rights Agreement, subject to certain exceptions, we will be
required to use commercially reasonable efforts to file a registration statement to register for resale the
JBG SMITH common shares issued to the JBG Parties and the JBG designees in the combination no
later than 60 days following the consummation of the combination. We will be required to pay all
expenses related to our registration obligations under such Shares Registration Rights Agreement,
except for any brokerage and sales commission fees and disbursements of each holder’s counsel,
accountants and other holder’s advisors, and any transfer taxes relating to the sale or disposition of the
JBG SMITH common shares by such holder.
Under the Units Registration Rights Agreement, subject to certain exceptions, we will agree to
file one or more registration statements within 13 months following the consummation of the
combination that cover either the issuance or the resale of JBG SMITH common shares issued in
exchange for JBG SMITH LP common limited partnership units issued in the combination. We also
will be required to use commercially reasonable efforts to cause the registration statement(s) to become
effective as promptly as practicable after filing and (i) for registration statement(s) relating to the
issuance of JBG SMITH common shares, remain effective until all JBG SMITH LP common limited
partnership units issued in the combination have been redeemed or exchanged or the JBG SMITH
common shares eligible for registration no longer exist as a class of securities, or (ii) for registration
statement(s) relating to the resale of JBG SMITH common shares, remain effective until all JBG
SMITH common shares have been sold or are eligible to be resold without registration under Rule 144
promulgated under the Securities Act. If we determine to register the resale of the JBG SMITH
common shares, each holder of JBG SMITH LP common limited partnership units issued in the
combination desiring to be covered by the registration statement will be required to provide us with all
information regarding the holder and the holder’s plan of distribution that is required to be included in
the registration statement. We will pay all of the expenses relating to the registration of JBG SMITH
common shares.
The registration of either the issuance or the resale of the JBG SMITH common shares to be
received upon redemption of JBG SMITH LP common limited partnership units generally will enable
holders of JBG SMITH LP common limited partnership units to immediately resell under U.S. federal
securities laws any JBG SMITH common shares received upon the redemption of JBG SMITH LP
common limited partnership units that were issued in the combination.
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The Registration Rights Agreements will permit us to suspend the use of any registration
statement if we have material information that has not yet been included in the registration statement,
we are engaging in an underwritten offering of our own shares or in certain other circumstances. We
will not be permitted to suspend the use of any registration statement pursuant to these provisions for
more than 180 days in any 12-month period.
The Registration Rights Agreements also will provide for customary indemnification obligations
of both the company and the holders in connection with any registration statement. In general, we will
indemnify each person receiving the registration rights for any liability arising out of any actual or
alleged material misstatements or omissions contained in a registration statement or related prospectus,
except for misstatements or omissions relating to the information provided by that person. Each person
receiving the registration rights will provide us with corresponding indemnification relating to the
information provided by the holder. The rights under any agreement with respect to JBG SMITH
common shares issuable upon exchange of JBG SMITH LP common limited partnership units generally
will be transferable in connection with any permitted transfer of the JBG SMITH LP common limited
partnership units.
Agreements with Vornado
Following the separation, JBG SMITH and Vornado will operate separately, each as an
independent public company. JBG SMITH and Vornado will enter into the Separation Agreement and
certain other agreements prior to the separation that will effectuate the separation, provide a
framework for JBG SMITH’s relationship with Vornado after the separation and provide for the
allocation between JBG SMITH and Vornado of Vornado’s assets, liabilities and obligations (including
its assets, employees and tax-related assets and liabilities) attributable to periods prior to, at and after
JBG SMITH’s separation from Vornado, such as a Transition Services Agreement, a Tax Matters
Agreement, and an Employee Matters Agreement. The forms of the agreements listed above are filed
as exhibits to the registration statement on Form 10 of which this information statement is a part. In
addition, JBG SMITH will enter into certain Cleaning Services Agreements with a subsidiary of
Vornado with respect to the JBG Included Properties and Vornado Included Properties, and a
Management Agreement.
The summaries that follow of each of the agreements listed above are qualified in their
entireties by reference to the full text of the applicable agreements, which are incorporated by
reference into this information statement. When used in this section, ‘‘distribution date’’ refers to the
date on which Vornado distributes its JBG SMITH common shares to the holders of Vornado common
shares and VRLP distributes JBG SMITH common shares to the holders of its common limited
partnership units.
The Separation Agreement
The following discussion summarizes the material provisions of the Separation Agreement that
will be entered into between JBG SMITH and Vornado. The Separation Agreement sets forth, among
other things, JBG SMITH’s agreements with Vornado regarding the principal transactions necessary to
separate JBG SMITH from Vornado. It also sets forth other agreements that govern certain aspects of
JBG SMITH’s relationship with Vornado after 11:59 p.m. on the distribution date, which we refer to as
the effective time.
Transfer of Assets and Assumption of Liabilities
The Separation Agreement identifies the assets to be transferred, the liabilities to be assumed
and the contracts to be assigned to each of JBG SMITH and Vornado as part of the separation of
Vornado into two companies, and it provides for when and how these transfers, assumptions and
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assignments will occur. In particular, the Separation Agreement provides, among other things, that
subject to the terms and conditions contained therein:
• Certain assets related to the Vornado Included Properties, as operated by Vornado as of the
effective time, referred to as the ‘‘JBG SMITH Assets,’’ will be transferred to JBG SMITH
or one of JBG SMITH’s subsidiaries, including:
• real property;
• contracts (or portions thereof) that relate to the JBG SMITH business as of the
effective time;
• equity interests of certain Vornado subsidiaries that hold assets and liabilities related
to the JBG SMITH business as of the effective time;
• information or the right to information related to the JBG SMITH Assets, the JBG
SMITH Liabilities (as defined below), or the JBG SMITH business as of the
effective time;
• assets expressly allocated to JBG SMITH or one of JBG SMITH’s subsidiaries
pursuant to the terms of the Separation Agreement or certain other agreements
entered into in connection with the separation;
• other assets that are included in the JBG SMITH pro forma balance sheet which
appear in the section entitled ‘‘Unaudited Pro Forma Combined Financial
Statements,’’ and any assets acquired subsequent to the date of such pro forma
balance sheet which, had they been so acquired on or before such date and owned
as of such date, would have been reflected on such pro forma balance sheet if
prepared on a consistent basis; and
• all other assets owned or held by Vornado or JBG SMITH or any of their respective
subsidiaries immediately prior to the effective time that exclusively relate to or are
exclusively used in the JBG SMITH business.
• Certain liabilities related to the JBG SMITH business as of the effective time or the JBG
SMITH Assets, referred to as the ‘‘JBG SMITH Liabilities,’’ will be transferred to JBG
SMITH or one of JBG SMITH’s subsidiaries, including:
• liabilities arising out of actions, inactions, events, omissions, conditions, facts, or
circumstances occurring or existing prior to the effective time to the extent related
to, arising out of or resulting from the JBG SMITH business or the JBG SMITH
Assets;
• liabilities for claims made by third parties, or trustees, officers, employees, agents of
Vornado or JBG SMITH or their subsidiaries or affiliates against either Vornado or
JBG SMITH or any of their respective subsidiaries to the extent relating to, arising
out of, or resulting from the JBG SMITH business, the JBG SMITH Assets or JBG
SMITH Liabilities;
• all liabilities to the extent relating to, arising out of or resulting from (i) the
activities or operations of the JBG SMITH business or the ownership or use of the
JBG SMITH Assets after the separation by JBG SMITH or any of its subsidiaries or
(ii) the activities or operations of any other business conducted by JBG SMITH or
any of its subsidiaries at any time after the separation;
• liabilities and obligations expressly allocated to JBG SMITH or one of JBG
SMITH’s subsidiaries pursuant to the terms of the Separation Agreement or certain
other agreements entered into in connection with the separation;
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• liabilities relating to, arising out of or resulting from certain contracts, intellectual
property, software, technology and permits transferred to JBG SMITH as a result of
the separation; and
• other liabilities that are included in the JBG SMITH pro forma balance sheet which
appear in the section entitled ‘‘Unaudited Pro Forma Combined Financial
Statements,’’ and all liabilities arising or assumed after the date of such pro forma
balance sheet which, had they arisen or been assumed on or before such date and
been retained as of such date, would have been reflected on such pro forma balance
sheet if prepared on a consistent basis.
• All of the assets and liabilities (including whether accrued, contingent, or otherwise) other
than the JBG SMITH Assets and JBG SMITH Liabilities (such assets and liabilities, other
than the JBG SMITH Assets and the JBG SMITH Liabilities, referred to as the ‘‘Vornado
Assets’’ and ‘‘Vornado Liabilities,’’ respectively) will be retained by or transferred to Vornado
or one of its subsidiaries.
Except as expressly set forth in the Separation Agreement, the MTA or any ancillary
agreement (as defined in the Separation Agreement, including but not limited to the Transition
Services Agreement, Tax Matters Agreement, and the Employee Matters Agreement), neither JBG
SMITH nor Vornado will make any representation or warranty as to the assets, business or liabilities
transferred or assumed as contemplated by the Separation Agreement, the MTA or any ancillary
agreement, as to any consents, approvals or notifications required in connection with the transfers, as
to the value of or the freedom from any security interests of any of the assets, as to the absence of any
defenses or right of setoff or freedom from counterclaim with respect to any claim or other asset of
either JBG SMITH or Vornado, or as to the legal sufficiency of any assignment, document or
instrument delivered under the Separation Agreement to convey title to any asset or thing of value to
be transferred in connection with the separation. All assets will be transferred on an ‘‘as is,’’ ‘‘where is’’
basis and the respective transferees will bear the economic and legal risks that any conveyance will
prove to be insufficient to vest in the transferee good and marketable title, free and clear of all security
interests, and that any necessary consents, approvals or notifications are not obtained or made or that
any requirements of laws, agreements, security interests, or judgments are not complied with.
Information in this information statement with respect to the assets and liabilities of the parties
following the effective time but before the combination is presented based on the allocation of such
assets and liabilities pursuant to the Separation Agreement, unless the context otherwise requires. The
Separation Agreement provides that, in the event that the novation or assignment of certain liabilities
to Vornado or JBG SMITH, as applicable, does not occur prior to the effective time, then until such
liabilities are able to be novated or assigned, Vornado or JBG SMITH, as applicable, will pay, perform,
and discharge such obligations and liabilities from which the other party has not been released as a
result of such inability to effectuate such novation or assignment, from and after the effective time.
The Distribution
The Separation Agreement also governs the rights and obligations of the parties regarding the
distribution following the effective time. On the distribution date, Vornado will distribute to its
shareholders that hold Vornado common shares as of the close of business on the record date such
number of shares of JBG SMITH as is necessary to effect the Vornado distribution, on a pro rata basis.
Immediately prior to such distribution by Vornado, VRLP will distribute to the holders of its common
limited partnership units as of the close of business on the record date all of the issued and
outstanding common limited partnership units of JBG SMITH LP on a pro rata basis. Following such
distribution by VRLP and prior to such distribution by Vornado, Vornado will contribute to JBG
SMITH all of the common limited partnership units of JBG SMITH LP it receives in the distribution
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by VRLP in exchange for JBG SMITH common shares. Common shareholders will receive cash in lieu
of any fractional shares.
Conditions to the Distribution
The Separation Agreement provides that the distribution is subject to the satisfaction (or
waiver by Vornado) of certain conditions; provided, however, that any such waiver by Vornado shall be
subject to the written consent of JBG Properties, unless the MTA shall have been terminated in
accordance with its terms. These conditions are described under ‘‘The Separation and the
Combination—The Combination—The MTA—Conditions to Consummation of the Separation and the
Combination.’’
Subject to the terms of the MTA, Vornado has the sole and absolute discretion to determine
(and change) the terms of, and to determine whether to proceed with, the distributions by each of
Vornado and VRLP and, to the extent it determines to so proceed, to determine the record date and
the distribution date for the distribution by each of Vornado and VRLP.
Claims
In general, each party to the Separation Agreement will assume liability for all pending,
threatened and unasserted legal matters related to its own business or its assumed or retained
liabilities, and will indemnify the other party for any liability to the extent arising out of or resulting
from such assumed or retained legal matters.
Releases
The Separation Agreement provides that JBG SMITH and its affiliates will release and
discharge Vornado and its affiliates from all liabilities assumed by JBG SMITH as part of the
separation, from all JBG SMITH Liabilities, from all liabilities arising from or in connection with all
acts and events occurring or existing, on or before the effective time relating to JBG SMITH’s business,
the JBG SMITH Assets and the JBG SMITH Liabilities, and from all liabilities arising from or in
connection with the implementation of the separation and the combination, except as expressly set
forth in the Separation Agreement. Vornado and its affiliates will release and discharge JBG SMITH
and its affiliates from all liabilities retained by Vornado and its affiliates as part of the separation, from
all liabilities existing or arising in connection with the implementation of the separation and the
combination, and from all acts and events occurring or existing, on or before the effective time relating
to Vornado’s business, the Vornado Assets and the Vornado Liabilities, except as expressly set forth in
the Separation Agreement.
These releases will not extend to obligations or liabilities under any agreements between the
parties that remain in effect following the separation, which agreements include, but are not limited to,
the Separation Agreement, the MTA, Transition Services Agreement, Tax Matters Agreement,
Employee Matters Agreement, and certain other agreements executed in connection with the
separation.
Indemnification
Pursuant to the Separation Agreement, JBG SMITH LP will indemnify, defend and hold
harmless Vornado, each of its affiliates and each of their respective trustees, officers and employees,
from and against all liabilities relating to, arising out of or resulting from:
• The JBG SMITH Liabilities;
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• The failure of JBG SMITH or any of its subsidiaries to pay, perform or otherwise promptly
discharge any of the JBG SMITH Liabilities, in accordance with their respective terms,
whether prior to, at or after the effective time;
• Any breach by JBG SMITH or any of its subsidiaries of the Separation Agreement or any of
the ancillary agreements; and
• Except to the extent it relates to a Vornado Liability, any guarantee, indemnification or
contribution obligation, surety bond or other credit support agreement, arrangement,
commitment or understanding for the benefit of JBG SMITH or any of its subsidiaries by
Vornado or any of its subsidiaries (other than JBG SMITH and its subsidiaries) that is
required to be novated pursuant to the Separation Agreement and that survives following the
effective time (other than as a result of a breach thereof by any member of Vornado or any
of its subsidiaries (other than JBG SMITH and its subsidiaries).
VRLP will indemnify, defend and hold harmless JBG SMITH, each of its affiliates and each of
its respective trustees, officers and employees from and against all liabilities relating to, arising out of
or resulting from:
• The Vornado Liabilities;
• The failure of Vornado or any of its subsidiaries, other than JBG SMITH, to pay, perform or
otherwise promptly discharge any of the Vornado Liabilities, in accordance with their
respective terms whether prior to, at or after the effective time;
• Any breach by Vornado or any of its subsidiaries, other than JBG SMITH, of the Separation
Agreement or any of the ancillary agreements; and
• Except to the extent it relates to a JBG SMITH Liability, any guarantee, indemnification or
contribution obligation, surety bond or other credit support agreement, arrangement,
commitment or understanding for the benefit of Vornado or any of its subsidiaries (other
than JBG SMITH and its subsidiaries) by JBG SMITH or any of its subsidiaries that is
required to be novated pursuant to the Separation Agreement and that survives following the
effective time (other than as a result of a breach thereof by JBG SMITH or any of its
subsidiaries after the separation).
The Separation Agreement also establishes procedures with respect to claims subject to
indemnification and related matters.
Legal Matters
Subject to certain specified exceptions, each party to the Separation Agreement will assume the
liability for, and control of, all pending and threatened legal matters related to its own business, as well
as assumed or retained liabilities and will indemnify the other party for any liability arising out of or
resulting from such assumed legal matters.
Insurance
The Separation Agreement provides for the allocation between the parties of rights and
obligations under existing insurance policies with respect to occurrences prior to the distribution date
and sets forth procedures for the administration of insured claims. In addition, the Separation
Agreement allocates between the parties the right to proceeds and the obligation to incur certain
deductibles under certain insurance policies.
236
Further Assurances
In addition to the actions specifically provided for in the Separation Agreement, both JBG
SMITH and Vornado agree in the Separation Agreement to use commercially reasonable efforts, prior
to, on and after the effective time, to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws, regulations and agreements to
consummate and make effective the transactions contemplated by the Separation Agreement and the
ancillary agreements.
Dispute Resolution
The Separation Agreement contains provisions that govern the resolution of disputes,
controversies or claims that may arise between JBG SMITH and Vornado related to the Separation
Agreement or any ancillary agreement. These provisions contemplate that efforts will be made to
resolve disputes, controversies and claims by escalation of the matter to executives of JBG SMITH and
Vornado who hold, at a minimum, the title of vice president. If such efforts are not successful, either
JBG SMITH or Vornado may submit the dispute, controversy or claim to mediation and subsequently
arbitration, subject to the provisions of the Separation Agreement.
Expenses
JBG SMITH and its subsidiaries will be responsible for reasonable out-of-pocket third-party
fees, costs and expenses incurred on or prior to the effective time in connection with the preparation,
execution, delivery and implementation of the Separation Agreement and any ancillary agreement, the
separation, and the registration statement on Form 10 filed by JBG SMITH of which this information
statement forms a part. All fees, costs and expenses incurred after the effective time shall be borne by
the party incurring such fees, costs or expenses.
Other Matters
Other matters governed by the Separation Agreement include access to financial and other
information, confidentiality, access to and provision of records and treatment of outstanding guarantees
and similar credit support.
Termination
The Separation Agreement provides that it shall terminate simultaneously with the valid
termination of the MTA prior to the closing of the combination. Except for a termination described in
the immediately preceding sentence, prior to the closing of the combination, JBG SMITH shall not
agree to terminate the Separation Agreement without the prior written consent of JBG Properties,
which consent shall not be unreasonably withheld, conditioned or delayed. After the closing of the
combination, the Separation Agreement may not be terminated except by an agreement in writing
signed by a duly authorized officer of each of Vornado, VRLP, JBG SMITH and JBG SMITH LP.
Amendments
No provision of the Separation Agreement may be amended or modified except by a written
instrument signed by the party against whom the amendment is sought to be enforced. In addition,
unless the MTA has been terminated in accordance with its terms, such amendment shall be subject to
the written consent of JBG Operating Partners.
Transition Services Agreement
JBG SMITH and Vornado will enter into a Transition Services Agreement prior to the
distribution pursuant to which Vornado and its subsidiaries will provide various corporate support
237
services to JBG SMITH on an interim, transitional basis. The services to be provided to JBG SMITH
will initially include information technology, financial reporting and SEC compliance, tax and human
resources and payroll and possibly other matters. The costs of the services to be provided to JBG
SMITH will be based on fully burdened cost and are expected to diminish over time as JBG SMITH
fills vacant positions and builds its own infrastructure. We believe that the terms are comparable to
those that would have been negotiated on an arm’s-length basis.
The Transition Services Agreement will terminate on the expiration of the term of the last
service provided under it, which will generally be up to 24 months following the distribution date.
Either party may terminate the agreement upon a change in control of the other party and JBG
SMITH, as the recipient for a particular service, generally can terminate that service prior to the
scheduled expiration date.
Tax Matters Agreement
In connection with the Separation Agreement, Vornado and JBG SMITH will enter into a Tax
Matters Agreement prior to the distribution by Vornado which will generally govern Vornado’s and
JBG SMITH’s respective rights, responsibilities and obligations after the distribution by Vornado with
respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as
a result of any failure of the distribution by Vornado and certain related transactions to qualify as
tax-free for U.S. federal income tax purposes), tax attributes, tax returns, tax elections, tax contests and
certain other tax matters.
In general, under the Tax Matters Agreement, JBG SMITH is liable for any taxes (other than
taxes related to the distribution, which will be allocated in the manner described in the next paragraph)
attributable to JBG SMITH and its subsidiaries, unless such taxes are imposed on JBG SMITH or any
of the REITs contributed by Vornado (i) with respect to a period before the distribution as a result of
any action taken by Vornado after the distribution, or (ii) with respect to any period as a result of
Vornado’s failure to qualify as a REIT for the taxable year of Vornado that includes the distribution.
In addition, the Tax Matters Agreement will impose certain restrictions on JBG SMITH and its
subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar
transactions) that will be designed to preserve the tax-free status of the distribution by Vornado and
certain related transactions. The Tax Matters Agreement will provide special rules that allocate tax
liabilities in the event the distribution by Vornado, together with certain related transactions, is not
tax-free. In general, under the Tax Matters Agreement, each party is expected to be responsible for any
taxes imposed on Vornado or JBG SMITH that arise from the failure of the distribution by Vornado,
together with certain related transactions, to qualify as a tax-free transaction for U.S. federal income
tax purposes under Sections 368(a)(1)(D) and 355 of the Code (including as a result of Section 355(e)
of the Code), to the extent that the failure to so qualify is attributable to actions, events or transactions
relating to such party’s respective shares, assets or business, or a breach of the relevant representations
or covenants made by that party in the Tax Matters Agreement.
Employee Matters Agreement
In connection with the Separation Agreement, Vornado and JBG SMITH will enter into an
Employee Matters Agreement to allocate liabilities and responsibilities relating to employment matters,
employee compensation and benefits plans and programs, and other related matters.
The Employee Matters Agreement will govern Vornado’s and JBG SMITH’s compensation and
employee benefit obligations relating to employees of Vornado who will be employed by JBG SMITH
following the closing of the combination, and it generally will allocate liabilities and responsibilities
relating to employee compensation and benefit plans and programs for such employees between
Vornado and JBG SMITH. The Employee Matters Agreement will provide that JBG SMITH will
238
establish compensation and benefit plans and programs for the JBG SMITH employees, at the times
set forth therein. In addition, the Employee Matters Agreement will provide that, unless otherwise
specified, Vornado will remain responsible for certain liabilities associated with former Vornado
employees, employment-related liabilities associated with employees of Vornado who will be employed
by JBG SMITH following the separation that arise on or prior to the separation date, and any
liabilities associated with Vornado’s benefit plans in respect of Vornado employees, regardless of when
incurred. JBG SMITH will be responsible for employment-related liabilities associated with employees
who will be employed by JBG SMITH following the separation that arise after the separation date.
The Employee Matters Agreement also will set forth the general principles relating to
employee matters, including with respect to the assignment of employees, employment agreements,
workers’ compensation, recognition of employee service credit under the JBG SMITH benefit plans
and the duplication of benefits.
Cleaning Services Agreements
Pursuant to the MTA, at the completion of the separation and the combination, certain
subsidiaries of JBG SMITH and a subsidiary of Vornado will enter into agreements pursuant to which
a subsidiary of Vornado will provide cleaning services to the JBG Included Properties and the Vornado
Included Properties. The aggregate annual amount of fees we expect to pay pursuant to these
agreements is $21,487,816.
Management Agreement
Pursuant to the terms of the MTA, following the consummation of the separation and the
combination, from time to time, JBG SMITH may provide property management, asset management,
leasing brokerage and other similar services with respect to any Vornado real property asset that is
located in the Washington, DC metropolitan area that is excluded from the separation and the
combination (including any such Vornado Included Asset that is designated as a Kickout Interest
pursuant to the MTA). However, JBG SMITH will not provide any services that, as of the date of the
combination, are provided to such property by a third party that is not an affiliate of Vornado. Such
services shall be provided pursuant to the Management Agreement, which shall be entered into upon
the terms specified in the MTA and upon such other reasonable and customary terms as JBG SMITH
and Vornado may agree in good faith. The aggregate annual amount of fees we expect to receive
pursuant to the Management Agreement is $
.
Management Subcontracts
Pursuant to the terms of the MTA, following consummation of the combination, we expect to
provide services for the benefit of the JBG Funds that own interests in the JBG Excluded Assets, which
JBG Funds are owned in part by members of our senior management. Such services shall be provided
pursuant to management subcontracts, which shall be entered into in the form specified in the MTA, as
well as other service agreements. On a pro forma basis, we have earned approximately $9.6 million and
$47.1 million in aggregate fees pursuant to the services provided to the JBG Funds and the JBG
Excluded Assets for the three months ended as of March 31, 2017 and December 31, 2016,
respectively.
Employment Agreements
We have entered into employment agreements with our named executive officers that will take
effect upon completion of the transaction. For a description of the terms of these employment
agreements, see ‘‘Compensation Discussion and Analysis—JBG SMITH Compensation Programs
Following the Separation—Employment Agreements.’’
239
Consulting Agreement
In connection with the formation of JBG SMITH, on March 10, 2017, JBG SMITH entered
into a consulting agreement with Mr. Schear, effective as of and contingent upon the closing of the
combination (the ‘‘Consulting Agreement’’). The purpose of the Consulting Agreement is to secure
Mr. Schear’s expertise in managing what is currently Vornado’s Washington, DC division in order to
facilitate a smooth transition in connection with the separation of the division from Vornado and
integration of its operations with those of the JBG Companies. The Consulting Agreement, which
expires on December 31, 2017, is subject to renewal through the second anniversary of the closing of
the combination unless earlier terminated and provides for the payment of consulting fees at the rate
of $166,667 per month for up to 24 months following the closing, including upon termination of the
Consulting Agreement in certain circumstances by JBG SMITH, or after December 31, 2017 by
Mr. Schear. The Consulting Agreement provides for business expense reimbursements and additional
cash allowances of $2,750 per month related to Mr. Schear’s services. Mr. Schear will be subject to a
perpetual non-disclosure covenant and, through the first anniversary of the closing of the combination,
will also be subject to a non-competition covenant and a non-solicitation of employees and consultants
covenant. This disclosure is qualified in its entirety by reference to the full text of the Consulting
Agreement, which will be filed as an exhibit to the registration statement on Form 10 of which this
information statement forms a part and is incorporated herein by reference.
Continuation Agreement
It is anticipated that in June 2017, JBG/Operating Partners, L.P. will enter into a Second
Amended and Restated Continuation Agreement with Michael J. Glosserman (the ‘‘Continuation
Agreement’’) which will provide for certain transition arrangements and benefits upon his expected
termination of employment with JBG Properties, Inc. on June 30, 2017. Upon the merger of JBG/
Operating Partners, L.P. into a subsidiary of ours in connection with the closing, JBG SMITH will
assume certain obligations under this agreement, if entered into prior to that time, including, among
others, the provision of subsidized health insurance benefits to Mr. Glosserman until December 31,
2018 upon his election, and the use of certain company facilities and support staff until March 31, 2022.
This disclosure is qualified in its entirety by reference to the full text of the Continuation Agreement,
which will be filed as an exhibit to the registration statement on Form 10 of which this information
statement forms a part and is incorporated herein by reference.
Partnership Agreement
Pursuant to the MTA, we will enter into an operating partnership agreement with the limited
partners that own JBG SMITH LP limited partnership units. See ‘‘Partnership Agreement.’’ Upon
completion of the transaction, based upon the distribution by VRLP of one JBG SMITH LP common
limited partnership unit for every two VRLP common limited partnership units, and the number of
JBG SMITH LP common limited partnership units expected to be issued to JBG investors in
connection with the combination, we will own, directly and indirectly, approximately 86% of the
partnership interests in our operating partnership, the common limited partners of VRLP as of the
record date will own approximately 4% and JBG investors as of the date of the combination will own
approximately 10%. The partnership agreement will provide that, subject to periodic limits and
minimum thresholds, a limited partner may exercise a redemption right to redeem his or her common
limited partnership units for cash or, at our election, our common shares, at any time beginning one
year following the later of (1)
(the completion of the separation and the combination) and
(2) the date of the issuance of the common limited partnership units held by the limited partner,
subject to certain limitations in terms of timing and the total number of common limited partnership
units that can be redeemed in any single year. We may reduce or waive the holding period. In addition,
the partnership agreement generally restricts our ability to transfer our partnership interests or
withdraw from the partnership, including through mergers and certain other extraordinary transactions,
240
unless certain requirements are met. With respect to limited partners other than us, the partnership
agreement prohibits the sale, assignment, transfer, gift, pledge, encumbrance, hypothecation, mortgage,
exchange or any other disposition of all or any portion of the limited partnership units without our
consent, which we may give or withhold in our sole discretion, except for (i) transfers to affiliates of
the transferor limited partner, which are permissible without our consent, (ii) transfers by an
incapacitated limited partner, in which case such incapacitated limited partner may transfer all or any
portion of its partnership units, and (iii) certain other permitted transfers. ‘‘See Partnership
Agreement—Transferability of Interests’’ for more information regarding these restrictions. Our
investors who hold JBG SMITH LP common limited partnership units will receive registration rights
with respect to the common shares that may be issued to them upon the exchange of their common
limited partnership units. See ‘‘Certain Relationships and Related Person Transactions—Registration
Rights Agreements’’ for more information regarding these registration rights.
Incentive Awards
In connection with the transaction, a cash and equity-based incentive award plan for our
trustees, officers, employees and consultants will be adopted. We expect that an aggregate of
approximately 10,335,300 common shares will be available for issuance under awards granted pursuant
to our equity incentive plan. Upon completion of the separation, we intend to grant equity-based
awards, subject to certain vesting requirements, to certain of our key employees. See ‘‘Compensation
Discussion and Analysis—JBG SMITH Compensation Programs Following the Separation—JBG
SMITH 2017 Omnibus Share Plan’’ for more information.
Indemnification Agreements
Effective upon the completion of the transaction, our declaration of trust and bylaws will
provide for certain indemnification rights for our trustees and officers, and we will enter into an
indemnification agreement with each of our executive officers and trustees providing for procedures for
indemnification and advancements by us of certain expenses and costs relating to claims, suits or
proceedings arising from his or her service to us or, at our request, service to other entities, as officers
or trustees to the maximum extent permitted by Maryland law. See ‘‘Certain Provisions of Maryland
Law and of Our Declaration of Trust and Bylaws—Limitation of Liability and Indemnification of
Trustees and Officers.’’
241
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Before the separation, all of the outstanding JBG SMITH common shares will be owned
beneficially and of record by Vornado. Following the distribution by Vornado and the closing of the
combination, JBG SMITH expects to have outstanding approximately 118.5 million common shares and
JBG SMITH LP expects to have outstanding approximately 19.2 million common limited partnership
units (other than common limited partnership units expected to be owned by JBG SMITH) based upon
(i) the number of common shares and common limited partnership units of Vornado and VRLP
outstanding on May 31, 2017 and the distribution ratio, and (ii) the approximate number of JBG
SMITH common shares and JBG SMITH LP common limited partnership units expected to be issued
to JBG investors in connection with the combination.
Security Ownership of Certain Beneficial Owners
The following table reports the number of JBG SMITH common shares and JBG SMITH LP
common limited partnership units beneficially owned, immediately following the completion of the
separation and the combination, calculated as if the record date for the distributions was May 31, 2017,
based upon the distribution by Vornado of one JBG SMITH common share for every two Vornado
common shares, the distribution by VRLP of one JBG SMITH LP common limited partnership unit for
every two VRLP common limited partnership units, and the approximate number of JBG SMITH
common shares and JBG SMITH LP common limited partnership units expected to be issued to JBG
investors in connection with the combination, by the holders listed below (directly or indirectly), all of
whom would beneficially own more than 5% of JBG SMITH’s outstanding common shares or JBG
SMITH LP’s outstanding common limited partnership interests (excluding JBG SMITH itself). Unless
otherwise indicated in the footnotes, shares and partnership units are owned directly and the indicated
person has sole voting and investment power.
Number of
Common Shares
and Partnership
Units(1)
Percent of All
Common
Shares(1)
Percent of All
Common Shares
and Partnership
Units(1)
The Vanguard Group, Inc.(2) . . . . . . . . . . . . . . . . . . . . .
100 Vanguard Boulevard
Malvern, PA 19355
12,032,341
10.15%
8.73%
BlackRock Inc.(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40 East 52nd Street
New York, NY 10022
7,788,884
6.57%
5.65%
(1)
Based on the number of Vornado common shares entitled to receive shares of JBG SMITH in the distribution by
Vornado, the number of VRLP common limited partnership units entitled to receive common limited partnership units
of JBG SMITH LP in the distribution by VRLP, and the number of JBG SMITH shares and JBG SMITH LP common
limited partnership units expected to be issued to JBG investors in connection with the combination as of May 31,
2017.
(2)
Based on holdings of Vornado common shares and VRLP common limited partnership units as reported on an
amendment to Schedule 13G filed on February 13, 2017.
(3)
Based on holdings of Vornado common shares and VRLP common limited partnership units as reported on an
amendment to Schedule 13G filed on January 27, 2017.
Security Ownership of Trustees and Executive Officers
The following table sets forth information, immediately following the completion of the
separation and the combination, calculated as of May 31, 2017, based upon the distribution of one JBG
SMITH common share for every two Vornado common shares, the distribution of one JBG SMITH LP
common limited partnership unit for every two VRLP common limited partnership units, and the
approximate number of JBG SMITH common shares and JBG SMITH LP common limited partnership
units expected to be issued to JBG investors in connection with the combination, regarding (1) each
242
expected trustee and named executive officer of JBG SMITH and (2) all of JBG SMITH’s expected
trustees and executive officers as a group. The table does not reflect shares of JBG SMITH common
shares or JBG SMITH LP common limited partnership units underlying equity awards that we expect
will be made to our trustees and executive officers following the closing. See ‘‘Management—Trustee
Compensation’’ and ‘‘Compensation Discussion and Analysis—Initial Equity Grants.’’ Unless otherwise
indicated in the footnotes to the table, shares and partnership units are owned directly and the
indicated person has sole voting and investment power.
Number of
Common Shares
and Partnership
Units(1)
Steven Roth(3) . . . . . . . .
W. Matthew Kelly(4) . . . .
Scott A. Estes . . . . . . . .
Alan S. Forman(5) . . . . . .
Michael Glosserman(6) . .
Charles E. Haldeman, Jr.
James Iker(7) . . . . . . . . .
Carol A. Melton . . . . . .
William J. Mulrow . . . . .
David Paul(8) . . . . . . . . .
Mitchell Schear(9) . . . . . .
Ellen Shuman . . . . . . . .
Robert Stewart(10) . . . . . .
Stephen W. Theriot(11) . .
All trustees and executive
......
......
......
......
......
......
......
......
......
......
......
......
......
......
officers
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
..................
as a group (18 people) .
4,480,645
1,157,292
—
5,122,199
828,109
—
1,021,384
—
—
508,287
74,007
—
1,033,079
6,558
15,647,264
Percent of All
Common
Shares(1)(2)
3.78%
*
*
4.32%
*
*
*
*
*
*
*
*
*
*
13.2%
Percent of All
Common Shares
and Partnership
Units(1)(2)
3.25%
*
*
3.72%
*
*
*
*
*
*
*
*
*
*
11.4%
*
Less than 1%.
(1)
Based on the number of Vornado common shares entitled to receive shares of JBG SMITH in the distribution by
Vornado, the number of VRLP common limited partnership units entitled to receive common limited partnership units
of JBG SMITH LP in the distribution by VRLP, and the number of JBG SMITH shares and JBG SMITH LP common
limited partnership units expected to be issued to JBG investors in connection with the combination, as of May 31,
2017.
(2)
The total number of JBG SMITH common shares and JBG SMITH LP common limited partnership units outstanding
used in calculating this percentage assumes that all JBG SMITH LP common limited partnership units that each
person will own, as of the closing of the combination, are deemed to have been redeemed for JBG SMITH common
shares, but such JBG SMITH common shares are not deemed to be outstanding for the purpose of computing the
ownership percentage of any other person.
(3)
Consists of 4,217,214 common shares and 263,431 common limited partnership units. Interstate Properties, a
partnership of which Mr. Roth is one of the three general partners, owns 5,503,548 Vornado common shares, and will
therefore receive 2,751,774 JBG SMITH common shares in the distribution by Vornado. These common shares are
included in the total common shares and the percentage of common shares beneficially owned for Mr. Roth. Mr. Roth
shares voting power and investment power with respect to these common shares with the two other general partners.
Also includes 1,936 JBG SMITH common shares that will be owned by the Daryl and Steven Roth Foundation over
which Mr. Roth holds sole voting power and sole investment power. Does not include 37,299 JBG SMITH common
shares which will be owned by Mr. Roth’s spouse, as to which Mr. Roth disclaims any beneficial interest.
(4)
Consists solely of common limited partnership units.
(5)
Consists solely of common shares held by Yale University through various investment vehicles. Mr. Forman serves as
Director of Investments at the Yale University Investments Office. Mr. Forman disclaims beneficial ownership of all
common shares owned by Yale University.
(6)
Consists solely of common limited partnership units. 148,065 units are held through a limited liability company in
which Mr. Glosserman disclaims beneficial ownership.
(7)
Consists solely of common limited partnership units.
(8)
Consists solely of common limited partnership units.
(9)
Consists of 31,938 common shares and 42,069 common limited partnership units.
(10)
Consists solely of common limited partnership units, 4,692 of which are held through a limited liability company.
(11)
Consists of 2,002 common shares and 4,556 common limited partnership units.
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THE SEPARATION AND THE COMBINATION
Background
Since 2013, the management and board of trustees of Vornado have been considering the
merits of alternative strategies involving Vornado’s Washington, DC metropolitan area business,
including a potential tax-free spin-off into an independent publicly traded company. Ultimately,
management and the board of trustees decided that the Washington, DC business and Vornado’s New
York City-focused office and high street retail business would perform better and be better positioned
to grow, and would receive a better combined valuation in the marketplace, if they were separated,
which would allow for the delivery of enhanced value to Vornado shareholders.
In August, 2013, Vornado management began discussions with the management of the JBG
Parties regarding a potential combination of Vornado’s Washington, DC metropolitan area business
with The JBG Companies and certain Washington, DC assets owned by the JBG Parties. Over the
course of the following year and a half, Vornado and the JBG Parties conducted due diligence on each
other (including with respect to their respective real estate portfolios) and negotiated a non-binding
term sheet with respect to the potential combination.
In April 2014, while discussions with the JBG Parties continued, Vornado announced that,
consistent with Vornado’s plan to become a highly focused, office and high street retail REIT, its board
of trustees had approved a plan to spin off Vornado’s shopping center business into Urban Edge
Properties, a new publicly traded REIT. Over the course of 2014, Vornado management worked with its
financial and legal advisors to effectuate the separation of Urban Edge Properties from Vornado’s
other businesses.
In January of 2015, the negotiations between Vornado and the JBG Parties concluded without
the execution of the term sheet or any definitive agreement with respect to the potential combination.
On January 15, 2015, Vornado completed the spin-off of Urban Edge Properties from Vornado’s other
businesses.
In late 2015, Vornado’s management and board of trustees again began to review strategic
alternatives with respect to Vornado’s Washington, DC business, including the possibility of a tax-free
spin-off. In June 2016, Vornado’s management, in consultation with its financial advisors, determined
that a tax-free spin-off of the Washington, DC business was in the best interests of Vornado and would
be the best way to deliver value to shareholders, and directed Vornado’s legal and financial advisors to
begin preparations for implementing the transaction.
On August 22, 2016, Steven Roth and Michael Franco of Vornado resumed discussions with
W. Matthew Kelly and Michael Glosserman of JBG regarding the possible combination of Vornado’s
Washington, DC business with that of JBG. Discussions continued over the course of the following
week, and the parties exchanged drafts of a non-binding term sheet with respect to the potential
combination shortly thereafter.
During the month of September 2016, Vornado and JBG performed in-depth valuation
analyses of each other’s businesses, continued to negotiate the terms of the potential separation and
combination, and exchanged several drafts of the non-binding term sheet. Members of the respective
management of Vornado and JBG, and their respective legal and financial advisors, participated in
frequent calls and meetings regarding the principal terms of the transaction. On September 30, 2016,
Vornado and JBG agreed with respect to such principal terms and directed their respective legal and
financial advisors to draft the agreements necessary to memorialize the agreed terms and to conduct
due diligence review of the assets to be included in the separation and combination.
On October 6, 2016, the Vornado board of trustees met to discuss the potential transaction. At
the meeting, the board of trustees indicated its support for management continuing negotiations,
subject to the board of trustees’ final approval of the definitive agreements prior to their execution.
244
Over the course of October, 2016, Vornado and JBG exchanged and negotiated drafts of the
transaction agreements setting forth the terms of the separation and the combination, and continued to
perform due diligence on the assets to be included in the transaction. Vornado and JBG continued to
negotiate with respect to the relative equity values of the assets to be contributed by each of them and
the consideration to be received in exchange therefor.
On October 31, 2016, the Vornado board of trustees met and approved the proposed
transaction and the MTA. On October 31, 2016, Vornado announced that Vornado and VRLP had
entered into the MTA with the JBG Parties, JBG SMITH and JBG SMITH LP, pursuant to which
Vornado intends to separate the Vornado Included Assets from Vornado’s other businesses and
combine them with the JBG Included Assets. JBG SMITH will include Vornado’s Washington, DC
segment.
The Separation and Distribution
The separation will be effectuated by means of a pro rata distribution by Vornado to its
common shareholders of all outstanding JBG SMITH common shares. JBG SMITH was formed for the
purpose of receiving, via contribution from Vornado, all of the assets and liabilities of Vornado’s
Washington, DC segment, and combining Vornado’s Washington, DC segment (which operates as
Vornado / Charles E. Smith) and the management business and certain Washington, DC assets of JBG.
Immediately prior to such distribution by Vornado, VRLP will distribute all outstanding JBG
SMITH LP common limited partnership units on a pro rata basis to holders of VRLP’s common
limited partnership units, consisting of Vornado and the other common limited partners of VRLP.
Following such distribution by VRLP and prior to such distribution by Vornado, Vornado will
contribute to JBG SMITH all of the common limited partnership units of JBG SMITH LP it receives
in the distribution by VRLP in exchange for JBG SMITH common shares. On
, the board of
trustees of Vornado declared the distribution of all JBG SMITH common shares on the basis of one
JBG SMITH common share for every two Vornado common shares held of record as of the close of
business on the record date. Vornado common shareholders will receive cash in lieu of any fractional
JBG SMITH common shares that they would have received after the application of this ratio. On the
same date, VRLP declared the distribution of all of the outstanding JBG SMITH LP common limited
partnership units to Vornado and the other holders of common limited partnership units of VRLP on
the basis of one JBG SMITH LP common limited partnership unit for every two common limited
partnership units of VRLP held of record as of the close of business on the record date. Following the
distribution by VRLP, the contribution by Vornado to JBG SMITH of JBG SMITH LP common
limited partnership units and the distribution by Vornado, Vornado and JBG SMITH will be two
independent, publicly held companies.
On
, the distribution date, each Vornado common shareholder will receive from
Vornado one JBG SMITH common share for every two Vornado common shares held at the close of
business on the record date. Immediately prior to such distribution by Vornado, each holder of
common limited partnership units of VRLP will receive one JBG SMITH LP common limited
partnership unit for every two common limited partnership units held at the close of business on the
record date. You will not be required to make any payment, surrender or exchange your Vornado
common shares or VRLP common limited partnership units or take any other action to receive your
JBG SMITH common shares or JBG SMITH LP common limited partnership units in the distribution.
Following such distribution by VRLP and prior to such distribution by Vornado, Vornado will
contribute to JBG SMITH all of the common limited partnership units of JBG SMITH LP it receives
in the distribution by VRLP in exchange for JBG SMITH common shares.
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The Combination
At 12:01 a.m. on the business day following the separation, the JBG Parties will contribute to
JBG SMITH the JBG Included Assets, which consist of a portfolio of assets in the Washington, DC
metropolitan area consisting of (i) 30 operating assets comprised of 19 office assets totaling
approximately 3.6 million square feet (2.3 million square feet at JBG’s share), nine multifamily assets
with 2,883 units (1,099 units at JBG’s share) and two other assets totaling approximately 490,000 square
feet (73,000 square feet at JBG’s share); (ii) eight office and multifamily assets under construction
totaling over 1.6 million square feet (1.5 million square feet at JBG’s share); (iii) five near-term
development office and multifamily assets totaling over 1.3 million estimated square feet (1.0 million
square feet at JBG’s share) and (iv) 26 future development assets totaling over 11.7 million square feet
(8.5 million square feet at JBG’s share) of estimated potential development density, in exchange for
newly issued JBG SMITH common shares or newly issued common limited partnership units of JBG
SMITH LP. In addition, JBG will contribute its management business to JBG SMITH through the
merger of JBG Operating Partners with and into a subsidiary of JBG SMITH LP and the contribution
of all of the assets of JBG Properties to JBG SMITH LP in exchange for newly issued common limited
partnership units of JBG SMITH LP, as well as the contribution of certain managing member interests
in the JBG Included Entities owning the JBG Included Properties held by the JBG Managing Member
Entities.
The distribution and the combination as described in this information statement are subject to
the satisfaction or waiver of certain conditions. For a more detailed description of these conditions,
please refer to this section under ‘‘—Conditions to the Distribution and the Combination.’’
Reasons for the Separation and the Combination
Vornado’s board of trustees believes that separating the Vornado Included Assets from the
remainder of Vornado’s businesses and assets and combining the Vornado Included Assets with the
JBG Included Assets is in the best interests of Vornado for a number of reasons, including the
following:
• Provides potential for a higher aggregate market value for shareholders. The separation will
enable investors and the financial community to evaluate the performance of JBG SMITH’s
and Vornado’s remaining portfolios separately, which Vornado believes could result in a
higher aggregate market value than Vornado’s pre-spin value. Vornado believes the
separation and combination will enable each business to cultivate a distinct identity and to
appeal to different investors. As a separate company, JBG SMITH will be focused on
Washington, DC, making it an attractive investment opportunity for REIT investors looking
for exposure to this market. The ability to provide investors with two focused investment
vehicles with distinct strategies may enhance both companies’ attractiveness to investors, and
may increase each company’s ability to raise capital, including the ability to use its respective
common shares as acquisition currency.
• Creates two separate, focused companies executing distinct business strategies. As two separate
companies with dedicated management teams, Vornado and JBG SMITH will be highly
focused on their respective markets and will have an enhanced ability to maximize value for
their respective shareholders. Upon the separation, Vornado expects to be the premier
pure-play, publicly traded New York City (‘‘NYC’’) focused real estate company, with 89% of
EBITDA as adjusted generated from NYC assets during the first quarter of 2017. Vornado
will have a leading competitive position within key office submarkets, including Penn Plaza,
Midtown, the Plaza District, Midtown South and Chelsea/Meatpacking and key high street
retail destinations, including upper Fifth Avenue, Times Square, Madison Avenue, SoHo,
Union Square and the 34th Street—Penn Plaza District. Further, Vornado will be the only
REIT with a significant concentration of Manhattan high street retail assets, which Vornado
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believes to be amongst the scarcest and most valuable real estate in the world. Vornado
believes that the combination of JBG SMITH with the JBG Included Assets will create a
world-class, market-leading Washington, DC real estate company. With a premier portfolio of
Washington, DC assets and a dedicated and highly accomplished Washington, DC focused
management team, JBG SMITH will be positioned to maximize value through the execution
of its embedded growth opportunities, from the capturing of positive Washington, DC market
trends and the development of accretive growth projects as market conditions warrant. The
JBG Included Assets were carefully selected from the JBG Funds’ portfolios in order to
diversify, complement, and enhance the strategic concentration of Vornado / Charles E.
Smith’s existing portfolio in the most desirable submarkets with a focus on growth. Assets
that did not fit these objectives and were not appropriate for a public REIT were
deliberately excluded. As a result, JBG SMITH’s portfolio will be unmatched in scale, with
68 operating assets aggregating approximately 20.2 million square feet (16.1 million square
feet at our share), comprised of 50 office assets aggregating approximately 14.1 million
square feet (12.1 million square feet at our share), 14 multifamily assets aggregating 6,016
units (4,232 units at our share) and four other assets aggregating approximately 765,000
square feet (348,000 square feet at our share); (ii) eight office and multifamily assets under
construction totaling over 1.6 million square feet (1.5 million square feet at our share);
(iii) five near-term development office and multifamily assets totaling over 1.3 million
estimated square feet (1.0 million square feet at our share) and (iv) 44 future development
assets totaling over 22.1 million square feet (18.3 million square feet at our share) of
estimated potential development density. JBG SMITH will have a significant presence in
what JBG SMITH believes are the best submarkets in the Washington, DC metropolitan
area, including Downtown DC, Crystal City, Pentagon City, Rosslyn, Reston and Bethesda.
Over 98% of the portfolio is Metro-served, and JBG SMITH expects to be in an excellent
position to drive shareholder returns over time.
• Sharpens focus of Vornado as the premier pure-play NYC real estate company. The separation
represents a significant milestone in the continuation of Vornado’s long-term simplification
strategy, which has resulted in Vornado exiting multiple business lines and non-core assets,
and allowed Vornado to redeploy capital and upgrade the quality of its core NYC portfolio.
In recent years, the softening of the Washington, DC market overshadowed the NYC
portfolio’s performance. After the separation, investors will be able to more fully appreciate
the industry-leading metrics of the remaining Vornado business, which will be a peerless,
highly focused NYC-centric real estate company with premier office assets and the only high
street retail portfolio of unique quality and scale in which the public can invest. Vornado’s
premier NYC platform is a market-leader with substantial embedded growth potential.
Vornado has the largest NYC portfolio of any REIT by gross asset value, with a unique
opportunity to create substantial value through the redevelopment of its Penn Plaza holdings.
• Creates market-leading Washington, DC company with dedicated, best-in-class management team.
As a result of the combination, JBG SMITH will be led by a dedicated management team
composed of the current executive management team of the JBG Management Entities.
W. Matthew Kelly will be named Chief Executive Officer, David Paul will be named
President and Chief Operating Officer, James Iker will be named Chief Investment Officer
and Brian Coulter and Kai Reynolds will be named Co-Chief Development Officers. In
addition, from Vornado, Stephen W. Theriot will be Chief Financial Officer and Patrick J.
Tyrrell will be Chief Administrative Officer. JBG SMITH’s commercial leasing team will be
led by David Ritchey (Executive Vice President) and will be supported by Jim Creedon, a
25-year veteran with Vornado / Charles E. Smith, and a team of 14 professionals from both
JBG and Vornado / Charles E. Smith. The management team has a collective track record of
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active management of a large-scale real estate portfolio and success throughout market
cycles in the Washington, DC metropolitan area.
• Aligns incentives of JBG SMITH management and Vornado management with their respective
shareholders. JBG SMITH, like Vornado, believes equity compensation is most effective as a
motivational tool if it relates to the economic performance of the business that is the
employee’s particular area of responsibility and is not affected by unrelated businesses. As
such, JBG SMITH’s and Vornado’s executive compensation and incentive arrangements will
be designed to motivate their respective management teams to successfully execute their
respective business strategies. After the separation, equity compensation awarded to JBG
SMITH’s employees will be unaffected by the performance of Vornado and instead will only
be affected by the economic performance of JBG SMITH’s assets, which are located in the
Washington, DC metropolitan area, and equity compensation awarded to Vornado’s
employees will be unaffected by the performance of JBG SMITH and instead will be
affected only by the economic performance of its assets, thereby making such compensation
more effective in motivating, attracting and retaining key employees.
• Allows the Vornado Included Assets, particularly in Crystal City, to benefit from JBG SMITH
management’s value creating Placemaking process. The JBG management team has extensive
experience with Placemaking. Vornado believes this approach will allow JBG SMITH to
unlock the value of the Vornado Included Assets over time by improving the submarkets in
which they are located, increasing their attractiveness to potential tenants. In particular, JBG
SMITH expects to use Placemaking on the critical mass of assets it controls in Crystal City,
allowing it to leverage Crystal City’s proximity to downtown Washington, DC and Metro and
other key transportation infrastructure, urban-infill location and strong surrounding
demographics to position Crystal City as a vibrant, amenity-rich destination that can offer a
range of uses. This will drive office, multifamily and retail demand over time, significantly
increasing the value of JBG SMITH’s assets. JBG SMITH also expects to apply the
Placemaking approach to the Vornado Included Assets in Pentagon City and Rosslyn, with
similar benefits.
• Enhances transparency and better highlights the attributes of each company. With the separation
of Vornado’s Washington, DC assets into a separate, independent, publicly traded company,
followed immediately by the combination, investors will have the opportunity to invest in two
separate platforms with dedicated and focused management teams. The separation will
improve transparency and better highlight the attributes of both companies, thereby
permitting investors to evaluate each company based upon its own unique investment
characteristics and assess their investment decisions accordingly. Further, this will allow for
more effective independent management and internal capital allocation decisions as
standalone, relevant performance measures will be available for both entities without
competition for internal resources. The separation will also, by its nature, reduce the size of
both JBG SMITH and Vornado, thereby underscoring the relative importance of each
company’s respective business initiatives and increasing their relative contribution to each
company’s underlying performance.
• Separates two businesses with limited synergies. The office and multifamily businesses in
Washington, DC are significantly different from Vornado’s New York City office and high
street retail businesses in terms of tenant bases, geography, asset management and leasing
requirements. Vornado believes there are limited synergies arising from these businesses.
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Vornado’s board of trustees also considered a number of potentially negative factors in
evaluating the separation and the combination, including the following:
• Increased significance of certain costs and liabilities. Certain costs and liabilities that were less
significant to Vornado as a whole will be more significant for JBG SMITH and Vornado as
standalone company companies and each of Vornado and JBG SMITH will separately bear
certain costs, such as, for example, the costs associated with being public companies.
• One-time costs of the separation and the combination. JBG SMITH will incur costs in
connection with the transition to being a standalone company public company that may
include accounting, tax, legal and other professional services costs, recruiting and relocation
costs associated with hiring key senior management personnel new to JBG SMITH, costs
related to integrating the former Vornado and JBG employees who will becomes JBG
SMITH employees, costs related to establishing a new brand identity in the marketplace and
costs to separate information systems.
• Inability to realize anticipated benefits of the separation and the combination. JBG SMITH may
not achieve the anticipated benefits of the separation for a variety of reasons, including,
among others: (i) following the separation, JBG SMITH may be more susceptible to market
fluctuations and other adverse events than if it were still a part of Vornado; and
(ii) following the separation, Vornado’s business will be less diversified than Vornado’s
business prior to the separation.
• Initial pressure of JBG SMITH trading prices. JBG SMITH shares may come under initial
selling pressure if certain Vornado shareholders determine to sell shares in JBG SMITH. In
addition, the market may take time to distinguish JBG SMITH from other public office
REITs.
• Disruptions to the business as a result of the separation and the combination. The energy and
focus required to complete the separation and the combination could require substantial
time and attention from the management teams of Vornado and JBG SMITH, thereby
distracting them from the management and operations of their respective businesses.
Vornado’s board of trustees concluded that the potential benefits of the separation and the
combination outweighed these factors. For more information, please refer to the section entitled ‘‘Risk
Factors’’ included elsewhere in this information statement.
Restructuring Prior to the Distribution
Prior to or concurrently with the separation of the Washington, DC segment from Vornado’s
other businesses and the distribution by Vornado of JBG SMITH common shares, Vornado will engage
in certain restructuring transactions that are designed to consolidate the ownership of the Vornado
Included Assets into JBG SMITH, facilitate the separation and distribution by Vornado and provide us
with our initial capital.
In connection with the separation and distribution of JBG SMITH common shares by Vornado,
the following transactions have occurred or are expected to occur concurrently with or prior to
completion of the separation and distribution by Vornado:
• JBG SMITH was formed as a Maryland real estate investment trust on October 27, 2016.
• Our operating partnership, which we refer to as JBG SMITH LP, was formed as a Delaware
limited partnership on October 28, 2016.
• Pursuant to the terms of the MTA and the Separation Agreement, VRLP will cause the
Vornado Included Assets, and the Vornado Included Entities that own the Vornado Included
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Assets, to be contributed or otherwise transferred to JBG SMITH LP in exchange for 100%
of its outstanding common limited partnership units.
• In connection with the contribution or other transfer of assets described above, it is expected
that JBG SMITH or certain entities that will be our subsidiaries after the separation will
assume a certain amount of existing secured property-level indebtedness related to certain of
the Vornado Included Properties.
• To provide additional liquidity following the separation, we are arranging a credit facility with
a syndicate of banks as lenders. The credit facility is expected to provide borrowing capacity
of up to $1.4 billion.
• Certain of VRLP’s Washington, DC segment employees will become employees of JBG
SMITH.
• Pursuant to the MTA and the Separation Agreement, VRLP will distribute 100% of the
outstanding JBG SMITH LP common limited partnership units to Vornado and the other
common limited partners of VRLP pro rata with respect to their ownership of common
limited partnership units of VRLP as of the record date. Vornado and each of the other
common limited partners of VRLP will be entitled to receive one JBG SMITH LP common
limited partnership unit for every two common limited partnership units of VRLP held as of
the close of business on the record date.
• Pursuant to the MTA and the Separation Agreement, Vornado will contribute all of its JBG
SMITH LP common limited partnership units to JBG SMITH in exchange for additional
JBG SMITH common shares.
• Pursuant to the MTA and the Separation Agreement, Vornado will distribute all of our
outstanding common shares to Vornado common shareholders as of the record date on a pro
rata basis. Each Vornado common shareholder will be entitled to receive one JBG SMITH
common share for every two Vornado common shares held by such shareholder as of the
record date.
• In addition to the MTA and the Separation Agreement, JBG SMITH will enter into a
Transition Services Agreement, a Tax Matters Agreement, an Employee Matters Agreement,
the Cleaning Services Agreements, and a Management Agreement (as defined below) with
Vornado.
In general, we intend to own our assets and conduct substantially all of our business through
our operating partnership and its subsidiaries.
The Combination
Combination Transactions
In connection with the combination, the following transactions have occurred or are expected
to occur concurrently with or prior to completion of the combination:
• The separation and distribution will be completed, as described above.
• Prior to the combination, each JBG Contributing Fund will engage in a restructuring through
a series of steps pursuant to which, among other things, the JBG Included Assets of such
JBG Contributing Funds will be transferred to a newly formed Transferred LLC to be owned
directly or indirectly by the members of such JBG Contributing Fund (the ‘‘Restructuring
Transactions’’).
• In the combination, the JBG Included Assets owned by the Transferred LLCs will be
contributed to JBG SMITH LP or its subsidiaries through a series of contribution and
merger transactions (the ‘‘JBG Asset Contributions’’).
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• In the combination, JBG Operating Partners will merge with and into a wholly owned
subsidiary of JBG SMITH LP, with the partners of JBG Operating Partners receiving newly
issued common limited partnership units of JBG SMITH LP (the ‘‘JBG OP Merger’’).
• In the combination, JBG Properties will transfer all of its assets to JBG SMITH LP, in
exchange for newly issued common limited partnership units of JBG SMITH LP (the ‘‘JBG
Properties Contribution’’).
• In the combination, each JBG Managing Member Entity will transfer and contribute certain
non-economic managing member interests it has in any JBG Included Entity to a newly
formed wholly owned subsidiary of JBG SMITH LP (the ‘‘JBG Managing Member Interest
Contribution’’).
• In the combination, in consideration of JBG’s contribution of the JBG Included Assets to
JBG SMITH, the applicable JBG entity or certain direct and indirect owners of such JBG
entity (which we refer to as the JBG designees) will receive from JBG SMITH and JBG
SMITH LP, in a private placement satisfying the requirements of Regulation D, a number of
JBG SMITH common shares and/or common limited partnership units (or, in certain
circumstances, cash).
• JBG’s employees, with limited exceptions, will become employees of JBG SMITH.
• In connection with the contribution or other transfer of assets described above, it is expected
that JBG SMITH or certain entities that will be our subsidiaries after the combination will
assume a certain amount of existing secured property-level indebtedness related to the JBG
Included Properties (in addition to the secured property-level indebtedness related to the
Vornado Included Properties assumed in connection with the separation). On a pro forma
basis, JBG SMITH has approximately $2.2 billion aggregate principal amount of consolidated
debt outstanding ($2.2 billion at our share) and our unconsolidated joint ventures had over
$1.1 billion aggregate principal amount of debt outstanding ($380 million at our share),
resulting in a total of approximately $2.6 billion aggregate principal amount of debt
outstanding at our share.
Following the combination, certain JBG Funds will continue to own assets that will not be
contributed to JBG SMITH LP pursuant to the MTA and the principals of the JBG Parties, including
the principals who will become executive officers of JBG SMITH at the completion of the combination,
will retain interests in these JBG Funds, which entitle them to ‘‘promote’’ payments with respect to the
JBG Excluded Assets and certain joint venture interests if certain return thresholds are achieved.
Following the combination, the expected economic interests in JBG SMITH held by such principals
who are also executive officers of JBG SMITH will be significantly greater than their expected
economic interests in the JBG Funds. The JBG Excluded Assets are largely not in direct competition
with JBG SMITH since they are not consistent with JBG SMITH’s long-term business strategy, either
because they are asset types that JBG SMITH does not intend to focus on going forward or because
they are located in markets that will not be core markets for JBG SMITH going forward or that are
not Metro-served. Furthermore, the JBG Excluded Assets are expected to be sold over time as their
respective business plans are completed, eliminating any actual or potential conflicts of interest. The
JBG Excluded Assets can generally be categorized as (i) condominium and townhome assets,
(ii) hotels, (iii) assets likely to be sold in the near term, whether because they are under contract for
sale, being marketed for sale or likely to be marketed for sale in the near term, (iv) assets located in
markets that will not be core markets for JBG SMITH going forward or that are non-Metro-served,
(v) noncontrolling joint venture interests and (vi) single-tenant leased General Services Administration
assets that are encumbered with long-term, hyper-amortizing bond financing that is not consistent with
the financing strategy of JBG SMITH.
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The MTA
The MTA provides for the transactions that will comprise the separation and the combination
and sets out the rights and obligations of Vornado, VRLP, JBG SMITH, JBG SMITH LP and the JBG
Parties in connection therewith. A summary of the principal terms of the MTA is set forth below. This
summary does not purport to be complete, and is qualified in its entirety by reference to the full text of
the MTA, which will be filed as Exhibit 2.1 to the registration statement on Form 10 of which this
information statement forms a part and is incorporated herein by reference.
The Separation and the Combination
The MTA provides for the separation to take place as described above under ‘‘—Restructuring
Prior to JBG SMITH’s Distribution,’’ and for the combination to take place through a series of
contributions and mergers between the JBG Parties and JBG SMITH or its subsidiaries, as described
above under ‘‘—The Combination—Combination Transactions’’.
Revaluation of the Included Properties
The equity value of each Included Property (each such value, the ‘‘Asset Value’’) was agreed to
by the parties when the MTA was executed in order to serve as a basis for the relative allocation of
JBG SMITH equity between Vornado common shareholders and JBG investors. The parties conducted
in-depth valuation analyses of each other’s businesses and used a variety of methodologies to determine
the appropriate Asset Value for each property, including discounted cash flow analyses, calculations of
Asset Value based on management’s estimates of the capitalization rates applicable to each property
and determinations of Asset Value based on estimated sales price per square foot of properties
comparable to the Included Properties in both asset type and geographic market. The parties used this
information to come to preliminary conclusions about Asset Values, which the parties used as a starting
point for negotiations as to the final Asset Values to be included in the MTA
The Asset Value of each Included Property, and therefore the relative allocation of JBG
SMITH equity between Vornado common shareholders and JBG investors, is subject to certain upward
or downward adjustments, as set forth in the MTA. These adjustments include, among other things,
(i) increasing such Asset Value by amounts actually paid prior to the revaluation time (as defined
below) by Vornado or JBG, as applicable, on account of certain leasing costs, capital expenditures,
certain debt amortizations and paydowns, certain acquisition and development costs and any positive
net working capital balance with respect to such Included Property and (ii) decreasing such Asset Value
by the amount of certain leasing costs not yet paid as of the revaluation time pursuant to leases
included as part of the initial Asset Value in the MTA with respect to such Included Property, new
indebtedness, certain debt prepayment fees and any negative net working capital balance. The
‘‘revaluation time’’ will be 11:59 p.m. Eastern time on the last day of the calendar month in which all
of the conditions to consummation of the Transactions have been satisfied or waived (unless such
conditions are satisfied or waived in the last five days of a calendar month, in which case the
revaluation time will be 11:59 p.m. Eastern time on the last day of the following calendar month).
Consideration
In consideration of JBG’s contribution of the JBG Included Assets to JBG SMITH, the
applicable JBG entity or certain direct and indirect owners of such JBG entity (which we refer to as
the JBG designees) will receive from JBG SMITH and JBG SMITH LP, in a private placement
satisfying the requirements of Regulation D, a number of JBG SMITH common shares and/or common
limited partnership units (or, in certain circumstances, cash) to be determined based upon the relative
equity values of the Vornado Included Assets and the JBG Included Assets. The JBG Parties will be
entitled, in the aggregate, to receive a total number of JBG SMITH common shares and/or JBG
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SMITH LP common limited partnership units (which we refer to as equity consideration) equal to the
product of (x) a fraction, the numerator of which is the aggregate of the equity values of the JBG
Parties’ JBG Included Assets (as determined in accordance with the MTA) and of the total amount of
cash contributed by the JBG Parties to JBG SMITH upon the consummation of the combination, and
the denominator of which is the aggregate of the equity values of the Vornado Included Assets (as
determined in accordance with the MTA) and of the total amount of cash contributed by Vornado to
JBG SMITH upon the separation, multiplied by (y) the sum of (i) the number of JBG SMITH LP
common limited partnership units received by holders of VRLP common limited partnership units
(other than Vornado) in the distribution by VRLP plus (ii) the number of JBG SMITH common shares
received by shareholders of Vornado in the distribution by Vornado. With respect to the JBG Asset
Contributions, the applicable JBG entity (or its JBG designees) will be entitled to receive JBG SMITH
common shares and/or JBG SMITH LP common limited partnership units in accordance with the
elections of such JBG designees. With respect to the JBG OP Merger and the JBG Properties
Contribution, the applicable JBG entity (or its JBG designees) will be entitled to receive only JBG
SMITH LP common limited partnership units. With respect to the JBG Managing Member Interest
Contribution, the applicable JBG Managing Member Entity will receive no consideration.
To the extent that Vornado and VRLP reasonably determine with respect to any JBG entity or
JBG designee that the issuance of JBG SMITH common shares or JBG SMITH LP common limited
partnership units to such JBG entity or JBG designee cannot be effected in a private placement
satisfying the requirements of Regulation D, or if the JBG Parties do not timely furnish to the Vornado
Parties a satisfactory investor questionnaire from any JBG entity or JBG designee, JBG SMITH and
JBG SMITH LP shall pay the consideration owed to such JBG entity or JBG designee in the form of
cash (which we refer to as cash consideration) rather than equity consideration. Any such cash
consideration shall be equal to the product of (x) the number of JBG SMITH common shares and/or
JBG SMITH LP common limited partnership units that would otherwise have been payable to such
JBG entity or JBG designee multiplied by (y) the average of the high and the low trading prices of JBG
SMITH common shares on the NYSE on the date of the completion of the combination. If the total
amount of cash consideration exceeds $5 million, then unless Vornado and VRLP agree that the excess
may be drawn from JBG SMITH’s credit facility, then the revaluation time (as defined below under
‘‘—Kickout Interests’’) shall be extended until 11:59 p.m. on the last day of the calendar month in
which Vornado and JBG first determine that the total cash consideration will be equal to or less than
$5 million, provided that the revaluation time may not be extended as a result of an excess of cash
consideration beyond April 30, 2017. Because the closing of the combination will take place on the
fifteenth day of the calendar month immediately following the month in which the revaluation time
occurs, any postponement of the revaluation time due to an excess of cash consideration will result in a
postponement of the closing.
The common limited partnership units of JBG SMITH LP issued in connection with the JBG
OP Merger and the JBG Properties Contribution to individuals employed by JBG Properties and who
will continue as employees of JBG SMITH and to Michael Glosserman (as a member of the board of
trustees of JBG Smith) will be subject to certain vesting and/or transfer restrictions. 50% of such units
will be fully vested and not subject to forfeiture at the consummation of the combination, with the
remaining 50% vesting in equal monthly installments over a 30-month period beginning on the first day
of the 31st month after the combination and ending on the first day of the 60th month after the
combination as long as the individual remains employed by JBG SMITH (subject to accelerated vesting
upon the employee’s death or ‘‘disability,’’ or the termination of the employee’s employment with JBG
SMITH or its affiliate without ‘‘cause’’ or by the employee for ‘‘good reason,’’ or upon the occurrence
of a ‘‘change in control’’ or upon non-renewal by JBG SMITH of the employee’s employment
agreement, if any, as defined in and in accordance with the applicable Unit Issuance Agreement
pursuant to which such units are issued). The units that are fully vested at the time of issuance will not
be transferable or redeemable, including for JBG SMITH common shares or otherwise, for three years
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following the combination (subject to early termination of the transfer restrictions upon the occurrence
of certain specified events similar to those that trigger accelerated vesting, as described above), except
that up to 10% of an individual’s total units may be sold, pledged or redeemed for JBG SMITH
common shares during this period (subject to the transfer and redemption restrictions imposed on the
units generally by the limited partnership agreement of JBG SMITH LP, which we refer to as the
Partnership Agreement). The units that vest after issuance will be subject to the foregoing restrictions
on transfer and redemption for five years following the combination (subject to early termination of the
transfer restrictions upon the occurrence of certain specified events similar to those that trigger
accelerated vesting, as described above). The units issued to JBG employees who are retiring in
connection with, or are expected to retire within a year after, the combination will not be subject to
transfer or redemption restrictions other than those applicable to such units generally, but may be
subject to vesting and forfeiture, as set forth in the applicable Unit Issuance Agreement pursuant to
which such units are issued.
Initial Equity Grants
Pursuant to the MTA, an equity incentive plan will be adopted effective prior to the separation
and distribution, and pursuant to that plan, certain employees of JBG SMITH will be eligible to receive
initial equity-based awards, which may include awards based on interests in JBG SMITH LP.
Additionally, in order to attract and retain talented executives and to link compensation to shareholder
returns, initial ‘‘appreciation-only’’ equity grants will be made in connection with the consummation of
the combination to certain JBG Properties and Vornado employees with an aggregate value equal to
approximately $100 million (with the number of awards determined based on the value value of a JBG
SMITH common share on the NYSE), who in each case are intended to become trustees, employees or
members of the management team of JBG SMITH in connection with the combination. Such awards,
which we refer to as the ‘‘Formation Units,’’ will be special limited partnership interests in JBG
SMITH LP, structured in a manner intended to qualify as ‘‘profits interests’’ for federal income tax
purposes and the value of which will be tied to the appreciation of a common share of JBG SMITH
commencing from the date of grant. The Formation Units will be issued under the terms of the
Partnership Agreement and the JBG SMITH equity incentive plan. The Formation Units will generally
vest 25% on each of the third and fourth anniversaries of the date of grant, and 50% on the fifth
anniversary of the date of grant, subject to continued employment (with accelerated vesting upon the
occurrence of certain specified events as described in the applicable award agreement).
Kickout Interests
The contribution of certain assets to JBG SMITH LP in connection with the separation and
the combination will require the consent of certain third parties, including joint venture partners,
lenders and ground lessors of the Vornado Parties and the JBG Parties or their respective subsidiaries.
The MTA requires the Vornado Parties and the JBG Parties to seek to obtain such consents, and with
respect to any required debt consent, to seek to prepay or refinance the applicable loan if such consent
is not received within 120 days following the date of the MTA. If (i) a consent (or, with respect to debt
consents, a prepayment or refinancing in a manner that does not restrict the separation and the
combination and meets certain other terms set forth in the MTA) is not obtained with respect to
certain specified assets prior to the date that is 20 days before the anticipated completion of the
combination, or (ii) certain entities owned by the Vornado Parties and/or by the JBG Parties have not
completed certain specified actions prior to the date that is 20 days before the anticipated completion
of the combination, such assets will not be contributed or transferred as part of the separation and the
combination (we refer to each such asset or entity that is excluded for the above-referenced reasons or
pursuant to another provision of the MTA as a ‘‘Kickout Interest’’). In addition, at any time on or
before the revaluation time (as defined below), the Vornado Parties have the right to elect to designate
one JBG Included Property as being excluded from the Included Assets, and such asset will not be
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transferred at the time of the separation and the combination. The ‘‘revaluation time’’ will be
11:59 p.m. Eastern time on the last day of the calendar month in which all of the conditions to
consummation of the separation and the combination have been satisfied or waived (unless such
conditions are satisfied or waived in the last five days of a calendar month, in which case the
revaluation time will be 11:59 p.m. Eastern time on the last day of the following calendar month).
Until the later of 60 days following the completion of the combination and December 29, 2017
(which we refer to as the outside date), with respect to certain Kickout Interests, the MTA obligates
the Vornado Parties and the JBG Parties to cooperate in good faith and use commercially reasonable
efforts to obtain the necessary consents required to transfer such Kickout Interests after the completion
of the combination. For any such Kickout Interest for which such consent is obtained within such
period, such Kickout Interest will be contributed to JBG SMITH LP by the applicable Vornado Party
or JBG Party in exchange for JBG SMITH LP common limited partnership units or JBG SMITH
common shares, as applicable.
JBG SMITH Board of Trustees and Officers
Immediately after the separation and distribution by Vornado, (i) the number of trustees of
JBG SMITH shall increase to 12, and the board of trustees shall be comprised of the JBG Board
Designees and the Vornado Board Designees and (ii) the board of trustees of JBG SMITH shall
(a) appoint Steven Roth as Chairman of the board of trustees of JBG SMITH and Robert Stewart as
Executive Vice Chairman of the board of trustees of JBG SMITH and (b) appoint an equal number of
JBG Board Designees and Vornado Board Designees to the Audit Committee, Compensation
Committee and Corporate Governance and Nominating Committee (with the JBG Board Designees
and the Vornado Board Designees to serve on such committees being selected at the direction of the
JBG Parties and Vornado, respectively). In addition to Mr. Roth as Chairman, Mitchell Schear, the
current President of Vornado / Charles E. Smith, will serve as a trustee and be a Vornado Board
Designee. In addition to Mr. Stewart as Vice Chairman, W. Matthew Kelly and Michael Glosserman,
who are currently Managing Partners of JBG, will serve as trustees and be JBG Board Designees.
For a period of two years following the consummation of the separation and the combination,
if any Vornado Board Designee or JBG Board Designee is unable or unwilling to serve or is otherwise
no longer serving as a member of the board of trustees of JBG SMITH, then the remaining Vornado
Board Designees or JBG Board Designees, respectively, may designate a replacement individual
reasonably satisfactory to the Corporate Governance and Nominating Committee of the board of
trustees of JBG SMITH (which we refer to as a replacement designee) and the board of trustees of
JBG SMITH shall promptly appoint such replacement designee to fill the vacancy created thereby. In
addition, in connection with the first annual meeting following the consummation of the separation and
the combination, the board of trustees of JBG SMITH, subject to the reasonable exercise of its duties,
will take all such actions as may be necessary to nominate the Vornado Board Designees and the JBG
Board Designees (including their respective replacement designees, if any) for election by JBG
SMITH’s shareholders and will use no less rigorous efforts to cause the election of such Vornado
Board Designees and JBG Board Designees than the manner in which JBG SMITH supports other
nominees for the board of trustees of JBG SMITH.
JBG SMITH will be led by the current executive management team of the JBG Management
Entities. W. Matthew Kelly will be named Chief Executive Officer, David Paul will be named President
and Chief Operating Officer, James Iker will be named Chief Investment Officer and Brian Coulter
and Kai Reynolds will be named Co-Chief Development Officers. In addition, from Vornado, Stephen
W. Theriot will be Chief Financial Officer and Patrick J. Tyrrell will be Chief Administrative Officer.
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Representations, Warranties and Covenants
The MTA contains certain representations and warranties made by the Vornado Parties, on the
one hand, and certain representations and warranties made by the JBG Parties, on the other hand. The
representations and warranties were made by the parties as of the date of the MTA and as of the
consummation of the combination. Certain of these representations and warranties are subject to
specified exceptions and qualifications contained in the MTA and qualified by information the parties
provided to each other in disclosure letters delivered in connection with the MTA and, in the case of
the Vornado Parties, further qualified by documents or exhibits attached to certain recent filings filed
with or furnished to the SEC by the Vornado Parties, subject to certain exceptions.
Under the MTA, the Vornado Parties and the JBG Parties have each agreed to certain
customary covenants for transactions of this nature, including, among others, covenants:
• that the Vornado Parties shall cause JBG SMITH, JBG SMITH LP and each of the Vornado
Included Entities to, and the JBG Parties shall, conduct their respective business in all
material respects in the ordinary course of business consistent with past practices during the
period between the execution of the MTA and the consummation of the combination, subject
to certain exceptions;
• not to engage in certain activities during the period between the execution of the MTA and
the consummation of the combination without the consent of the other parties, not to be
unreasonably withheld, delayed or conditioned, subject to certain exceptions;
• that the Vornado Parties and the JBG Parties will use commercially reasonable efforts to
cooperate to arrange a credit financing for JBG SMITH and JBG SMITH LP on or
immediately prior to the consummation of the combination on terms acceptable to them in
their reasonable discretion;
• that the JBG Parties will implement the Restructuring Transactions prior to the
consummation of the combination;
• that Vornado shall cause JBG SMITH to use its commercially reasonable efforts to cause the
JBG SMITH common shares to be approved for listing on the NYSE prior to the
consummation of the combination, subject only to official notice of issuance;
• that, as promptly as practicable following the execution of the MTA, Vornado shall cause
JBG SMITH to prepare and file the initial registration statement on Form 10 (of which this
information statement forms a part) with the SEC, and that Vornado shall, and shall cause
JBG SMITH to, use commercially reasonable efforts to have such registration statement on
Form 10 declared effective by the SEC as promptly as practicable and keep the registration
statement on Form 10 effective for so long as necessary to consummate the separation and
the combination; and
• that, following the combination, upon request of the Vornado Parties from time to time, JBG
SMITH or its subsidiary shall provide certain property management, asset management,
leasing brokerage and other similar services with respect to any real property of the Vornado
Parties located in the Washington, DC metropolitan area other than the Vornado Included
Assets.
Exclusivity
From the date of the MTA until the consummation of the combination or the date, if any, on
which the MTA is terminated, each party shall not, and shall cause each of its affiliates not to, and
shall direct its representatives not to, directly or indirectly, solicit, initiate, knowingly facilitate or
otherwise enter into any discussions, negotiations or agreements which could reasonably be expected to
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lead to a possible sale or other disposition of its Included Assets with any person other than the
Vornado Parties or the JBG Parties, as applicable, subject to certain exceptions.
Conditions to Consummation of the Separation and the Combination
Consummation of the separation and the combination is subject to certain mutual conditions of
the parties, including: (i) that the JBG SMITH common shares to be distributed shall have been
accepted for listing on the NYSE, subject to official notice of distribution; (ii) that no law shall have
been enacted or promulgated by any governmental entity of competent jurisdiction which prohibits or
makes illegal the consummation of the separation, the distributions by Vornado and VRLP or the
combination; (iii) that any required waiting periods under any provision of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and any other federal or state antitrust law shall have expired,
been waived or been terminated; (iv) the consummation of the separation and the distribution by
Vornado in all material respects in accordance with the Separation Agreement; (v) that the SEC shall
have declared effective the registration statement on Form 10 of which this information statement
forms a part, and such registration statement shall not be subject to any stop order or proceeding
seeking a stop order; and (vi) that no more than 40% of the JBG Included Properties and no more
than 20% of the Vornado Included Properties (each percentage based on the initial asset values agreed
to by the parties in the MTA) shall be designated as ‘‘Kickout Interests’’ (and therefore prevented from
being transferred to JBG SMITH) pursuant to the terms of the MTA. In addition, the combination will
not take place before the outside date unless the parties otherwise agree or, assuming the satisfaction
or waiver of all other conditions to the consummation of the separation and the combination (other
than those that by their terms are to be satisfied at the consummation of the separation and the
combination, but subject to the satisfaction or waiver of such conditions), one of the parties exercises
its right to cause the consummation of the separation and the combination to take place as follows
(with each of the following percentages based on the initial asset values agreed to by the parties in the
MTA): (i) the Vornado Parties may set the revaluation time to allow the date of the combination to be
on or after March 15, 2017 once (a) no more than 10% of the Vornado Included Properties shall be
Kickout Interests and (b) no more than 20% of the JBG Included Properties shall be Kickout Interests;
(ii) the Vornado Parties may set the revaluation time to allow the date of the combination to be after
May 1, 2017 once (a) no more than 15% of the Vornado Included Properties shall be Kickout Interests
and (b) no more than 30% of the JBG Included Properties shall be Kickout Interests; (iii) the JBG
Parties may set the revaluation time to allow the date of the combination to be after July 1, 2017 once
(a) no more than 10% of the Vornado Included Properties shall be Kickout Interests, (b) no more than
20% of the JBG Included Properties shall be Kickout Interests and (c) no more than 20% of a
specified subset of JBG Included Properties shall be Kickout Interests; and (iv) the JBG Parties may
set the revaluation time to allow the date of the combination to be on or after March 15, 2017 once no
Vornado Included Properties or Vornado Included Properties are deemed Kickout Interests.
In addition, the Vornado Parties’ obligation to consummate the separation and the combination
is subject to certain other conditions, including, among others, (i) the accuracy of the JBG Parties’
representations and warranties and the JBG Parties’ compliance with their covenants and agreements
contained in the MTA, subject to customary materiality and material adverse effect qualifiers; (ii) the
receipt by Vornado and JBG SMITH of an opinion of Hogan Lovells US LLP, REIT counsel to JBG,
with respect to each REIT that is being contributed to JBG SMITH by JBG in the combination, on
which Sullivan & Cromwell LLP, REIT counsel to Vornado, and, following the combination, JBG
SMITH and its REIT counsel, shall be entitled to rely, to the effect that each such REIT has been
organized and operated in conformity with the requirements for qualification and taxation as a REIT
under the Code; (iii) the receipt by Vornado and JBG SMITH of an opinion of Sullivan &
Cromwell LLP to the effect that JBG SMITH will be organized and operated in conformity with the
requirements for qualification and taxation as a REIT under the Code; (iv) the receipt by Vornado of
an opinion of Sullivan & Cromwell LLP, satisfactory to the Vornado board of trustees, to the effect that
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the distribution by Vornado, together with certain related transactions, will qualify as a transaction that
is generally tax-free for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the
Code; (v) that certain key individuals shall have remained employed by the JBG Parties through the
date of the consummation of the combination, and shall not have repudiated their employment
agreements entered into with JBG SMITH prior to the consummation of the combination; and (vi) that
the JBG Parties have obtained all of the licenses, approvals, permits and registrations necessary to
operate the management business of the JBG Parties following the consummation of the combination,
subject to certain exceptions.
The JBG Parties’ obligation to consummate the separation and the combination is also subject
to certain other conditions, including, among others, (i) the accuracy of the Vornado Parties’
representations and warranties and the Vornado Parties’ compliance with their covenants and
agreements contained in the MTA, subject to customary materiality and material adverse effect
qualifiers; (ii) the receipt by JBG and JBG SMITH of a written opinion of Sullivan & Cromwell LLP,
REIT counsel to Vornado, with respect to Vornado and to each REIT that is being contributed by
VRLP to JBG SMITH LP, on which Hogan Lovells US LLP, REIT counsel to JBG, and, following the
combination, JBG SMITH and its REIT counsel, shall be entitled to rely, to the effect that Vornado
and each such REIT have been organized and operated in conformity with the requirements for
qualification and taxation as a REIT under the Code; (iii) the receipt by JBG and JBG SMITH of a
written opinion of Hogan Lovells US LLP, REIT counsel to JBG, to the effect that JBG SMITH will
be organized and operated in conformity with the requirements for qualification and taxation as a
REIT under the Code and its proposed method of operation will enable it to continue to meet such
requirements; and (iv) that each current member of JBG SMITH’s board of trustees who is not a JBG
Board Designee or a Vornado Board Designee shall have delivered an irrevocable written resignation
from the board of trustees of JBG SMITH or shall have otherwise ceased to be a member of the board
of trustees of JBG SMITH.
Termination
The MTA may be terminated by either Vornado or the JBG Parties (i) if the consummation of
the combination has not occurred on or before the outside date; (ii) if the separation and the
combination are permanently enjoined or otherwise prohibited by action of a governmental entity; or
(iii) in the event of certain uncured breaches by the other party that would result in a closing condition
being incapable of being satisfied by the outside date.
Contribution and Merger Agreements
Pursuant to the MTA, JBG SMITH (or a subsidiary thereof) and the JBG Contributing Funds
that are contributing the JBG Included Assets to JBG SMITH in the JBG Asset Contributions will
enter into separate contribution agreements or merger agreements, substantially in the forms attached
to the MTA. These contribution agreements and merger agreements will provide for the specific
transactions necessary to contribute the JBG Included Assets to JBG SMITH or its subsidiaries.
In addition, pursuant to the MTA, (i) JBG Operating Partners will enter into a merger
agreement with a wholly owned subsidiary of JBG SMITH LP substantially in the form attached to the
MTA, pursuant to which they will effect the JBG OP Merger, (ii) JBG Properties will enter into a
contribution agreement with JBG SMITH LP substantially in the form attached to the MTA, pursuant
to which they will effect the JBG Properties Contribution, and (iii) each JBG Managing Member Entity
will enter into a contribution agreement with a wholly owned subsidiary of JBG SMITH LP
substantially in the form attached to the MTA, pursuant to which they will effect the JBG Managing
Member Interest Contribution.
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Cleaning Services Agreements
Pursuant to the MTA, at the completion of the separation and the combination, certain
subsidiaries of JBG SMITH and a subsidiary of Vornado will enter into agreements pursuant to which
a subsidiary of Vornado will provide cleaning services to the JBG Included Properties and the Vornado
Included Properties. The aggregate annual amount of fees we expect to pay pursuant to these
agreements is $21,487,816.
Management Agreement
Pursuant to the terms of the MTA, following the consummation of the separation and the
combination, from time to time, JBG SMITH may provide property management, asset management,
leasing brokerage and other similar services with respect to any Vornado real property asset that is
located in the Washington, DC metropolitan area that is excluded from the separation and the
combination (including any such Vornado Included Asset that is designated as a Kickout Interest
pursuant to the MTA). However, JBG SMITH will not provide any services that, as of the date of the
combination, are provided to such property by a third party that is not an affiliate of Vornado. Such
services shall be provided pursuant to the Management Agreement, which shall be entered into upon
the terms specified in the MTA and upon such other reasonable and customary terms as JBG SMITH
and Vornado may agree in good faith. The aggregate annual amount of fees we expect to receive
pursuant to the Management Agreement is $65,000.
Management Subcontracts
Pursuant to the terms of the MTA, following consummation of the combination, we expect to
provide services for the benefit of the JBG Funds that own interests in the JBG Excluded Assets, which
JBG Funds are owned in part by members of our senior management. Such services shall be provided
pursuant to management subcontracts, which shall be entered into in the form specified in the MTA, as
well as other service agreements. On a pro forma basis, we have earned approximately $9.6 million and
$47.1 million in aggregate fees pursuant to the services provided to the JBG Funds and the JBG
Excluded Assets for the three months ended as of March 31, 2017 and December 31, 2016,
respectively.
When and How You Will Receive the Distribution
With the assistance of American Stock Transfer & Trust Company, LLC, Vornado expects to
distribute JBG SMITH common shares on
, the distribution date, to the holders of
Vornado common shares as of the close of business on
, the record date. American Stock
Transfer & Trust Company, LLC, which currently serves as the transfer agent and registrar for
Vornado’s common shares, will serve as the settlement and distribution agent in connection with the
distribution by Vornado and the transfer agent and registrar for JBG SMITH common shares.
If you own Vornado common shares as of the close of business on the record date, JBG
SMITH common shares that you are entitled to receive in the distribution will be issued electronically,
as of the distribution date, to you in direct registration form or to your bank or brokerage firm on your
behalf. If you are a registered holder, American Stock Transfer & Trust Company, LLC will then mail
you a direct registration account statement that reflects your JBG SMITH common shares. If you hold
your shares through a bank or brokerage firm, your bank or brokerage firm will credit your account for
the shares. Direct registration form refers to a method of recording share ownership when no physical
share certificates are issued to shareholders, as is the case in this distribution. If you sell Vornado
common shares in the ‘‘regular-way’’ market (as opposed to the ‘‘ex-distribution’’ market) up to and
including the distribution date, you will be selling your right to receive JBG SMITH common shares in
the distribution.
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Commencing on or shortly after the distribution date, if you hold physical share certificates
that evidence your Vornado common shares and you are the registered holder of the shares evidenced
by those certificates, the distribution agent will mail to you an account statement that indicates the
number of JBG SMITH common shares that have been registered in book-entry form in your name.
Most Vornado shareholders hold their common shares through a bank or brokerage firm. In
such cases, the bank or brokerage firm would be said to hold the shares in ‘‘street name’’ and
ownership would be recorded on the bank’s or brokerage firm’s books. If you hold your Vornado
common shares through a bank or brokerage firm, your bank or brokerage firm will credit your account
for the JBG SMITH common shares that you are entitled to receive in the distribution. If you have any
questions concerning the mechanics of having shares held in ‘‘street name,’’ please contact your bank or
brokerage firm.
Transferability of Shares You Receive
JBG SMITH common shares distributed to holders in connection with the distribution will be
transferable without registration under the Securities Act, except for shares received by persons who
may be deemed to be JBG SMITH affiliates. Persons who may be deemed to be JBG SMITH affiliates
after the distribution generally include individuals or entities that control, are controlled by, or are
under common control with JBG SMITH, which may include certain JBG SMITH executive officers,
trustees or principal shareholders. Securities held by JBG SMITH affiliates will be subject to resale
restrictions under the Securities Act. JBG SMITH affiliates will be permitted to sell JBG SMITH
common shares only pursuant to an effective registration statement or an exemption from the
registration requirements of the Securities Act, such as the exemptions afforded by Rule 144 under the
Securities Act. JBG SMITH common shares are subject to certain restrictions on transferability
designed to protect JBG SMITH’s REIT qualification. Please refer to ‘‘Description of Shares of
Beneficial Interest—Common Shares—Restrictions on Ownership of Common Shares’’ for additional
information regarding these restrictions.
The Number of JBG SMITH Common Shares You Will Receive
For every two Vornado common shares that you own at the close of business on the record
date, you will receive one JBG SMITH common share on the distribution date. Vornado will not
distribute any fractional JBG SMITH common shares to its common shareholders. Instead, if you are a
registered holder, American Stock Transfer & Trust Company, LLC will aggregate fractional shares into
whole shares, sell the whole shares in the open market at prevailing market prices following the
distribution and distribute the aggregate cash proceeds (net of discounts and commissions) of the sales
pro rata (based on the fractional share such holder would otherwise be entitled to receive) to each
holder who otherwise would have been entitled to receive a fractional share in the distribution. The
transfer agent, in its sole discrection, without any influence by Vornado or JBG SMITH, will determine
when, how, through which broker-dealer and at what price to sell the whole shares. Any broker-dealer
used by the transfer agent will not be an affiliate of either Vornado or JBG SMITH. Neither JBG
SMITH nor Vornado will be able to guarantee any minimum sale price in connection with the sale of
these shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the
amounts of payment made in lieu of fractional shares.
Please refer to ‘‘The Separation and the Combination—Material U.S. Federal Income Tax
Consequences of the Distribution to U.S. Holders of Vornado Common Shares’’ for a discussion of the
material U.S. federal income tax consequences of the distribution.
Results of the Distribution and the Combination
After its separation from Vornado, JBG SMITH will be an independent, publicly traded
company. The actual number of common shares to be distributed will be determined at the close of
business on the record date. The JBG SMITH common shares distributed by Vornado to holders of its
common shares will reflect any exercise of Vornado options between the date Vornado declares the
distribution and the record date for the distribution. The distribution will not affect the number of
outstanding Vornado common shares or any rights of Vornado shareholders. Vornado will not distribute
any fractional JBG SMITH common shares.
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Immediately following the combination, in total and taking into account the indirect interests in
JBG SMITH’s assets that are held by the limited partners of JBG SMITH LP, the economic interests in
JBG SMITH are expected to be owned approximately 73% by Vornado common shareholders and
holders of VRLP common limited partnership units as of the record date, 21% by JBG investors as of
the date of the combination, and 6% by current JBG management, which percentages are subject to
change pursuant to certain closing adjustments set forth in the MTA. The economic interests in JBG
SMITH that will be owned by JBG investors and current JBG management will consist of the JBG
SMITH common shares and JBG SMITH LP common limited partnership units issued upon the
completion of the combination in a private placement satisfying the requirements of Regulation D. At
such time, JBG SMITH’s common shares are expected to be owned approximately 80% by Vornado
common shareholders as of the record date and approximately 20% by JBG investors and current JBG
management. In addition, holders of VRLP common limited partnership units as of the record date are
expected to own approximately 4% of the common limited partnership units of JBG SMITH LP, JBG
investors as of the date of the combination are expected to own approximately 10% of the common
limited partnership units of JBG SMITH LP, and JBG SMITH is expected to own the remaining 86%.
JBG SMITH will enter into the Separation Agreement and certain other agreements with
Vornado before the distributions by each of Vornado and VRLP to effect the separation and provide a
framework for JBG SMITH’s relationship with Vornado after the separation. These agreements will
provide for the allocation between Vornado and JBG SMITH of Vornado’s assets, liabilities and
obligations (including its assets, employees and tax-related assets and liabilities) attributable to periods
prior to our separation from Vornado and will govern the relationship between Vornado and JBG
SMITH after the separation. For a more detailed description of these agreements, please refer to
‘‘Certain Relationships and Related Person Transactions.’’
Market for JBG SMITH Common Shares
There is currently no public trading market for JBG SMITH common shares. JBG SMITH’s
common shares have been accepted for listing on the NYSE under the symbol ‘‘JBGS’’, subject to
official notice of distribution. JBG SMITH has not and will not set the initial price of its common
shares. The initial price will be established by the public markets.
JBG SMITH cannot predict the price at which its common shares will trade after the
distribution. In fact, the combined trading prices, after the separation, of the JBG SMITH common
shares that each Vornado common shareholder will receive in the distribution and the Vornado
common shares held at the record date may not equal the ‘‘regular-way’’ trading price of a Vornado
common share immediately prior to the separation. The price at which JBG SMITH common shares
trade may fluctuate significantly, particularly until an orderly public market develops. Trading prices for
JBG SMITH common shares will be determined in the public markets and may be influenced by many
factors. Please refer to ‘‘Risk Factors—Risks Related to Our Common Shares.’’
Trading Between the Record Date and Distribution Date
Beginning on or shortly before the record date and continuing up to and including the
distribution date, Vornado expects that there will be two markets in Vornado common shares: a
‘‘regular-way’’ market and an ‘‘ex-distribution’’ market. Vornado common shares that trade on the
‘‘regular-way’’ market will trade with an entitlement to JBG SMITH common shares distributed
pursuant to the separation. Vornado common shares that trade on the ‘‘ex-distribution’’ market will
trade without an entitlement to JBG SMITH common shares distributed pursuant to the separation.
Therefore, if you sell Vornado common shares in the ‘‘regular-way’’ market up to and including the
distribution date, you will be selling your right to receive JBG SMITH common shares in the
distribution. If you own Vornado common shares at the close of business on the record date and sell
those shares on the ‘‘ex-distribution’’ market up to and including the distribution date, you will receive
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the JBG SMITH common shares that you are entitled to receive pursuant to your ownership as of the
record date of the Vornado common shares.
Furthermore, beginning on or shortly before the record date and continuing up to and
including the distribution date, JBG SMITH expects that there will be a ‘‘when-issued’’ market in its
common shares. ‘‘When-issued’’ trading refers to a sale or purchase made conditionally because the
security has been authorized but not yet issued. The ‘‘when-issued’’ trading market will be a market for
JBG SMITH common shares that will be distributed to holders of Vornado common shares on the
distribution date. If you owned Vornado common shares at the close of business on the record date,
you would be entitled to JBG SMITH common shares distributed pursuant to the distribution. You may
trade this entitlement to JBG SMITH common shares, without the Vornado common shares you own,
on the ‘‘when-issued’’ market. On the first trading day following the distribution date, ‘‘when-issued’’
trading with respect to JBG SMITH common shares will end, and ‘‘regular-way’’ trading will begin.
Conditions to the Distribution and the Combination
JBG SMITH has announced that the distribution will be effective at 11:59 p.m. Eastern time,
on
, which is the distribution date, and that the combination will be effective at 12:01 a.m. on
the business day following the distribution date, provided that the following conditions, among others,
shall have been satisfied (or waived by Vornado and/or the JBG Parties as set forth in the MTA):
Conditions to each party’s obligation to consummate the separation and the combination, including,
among others:
• The JBG SMITH common shares to be distributed shall have been accepted for listing on
the NYSE, subject to official notice of distribution;
• No law shall have been enacted or promulgated by any governmental entity of competent
jurisdiction which prohibits or makes illegal the consummation of the separation, the
distributions by Vornado and VRLP or the combination;
• Any required waiting periods under any provision of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and any other federal or state antitrust law shall have expired,
been waived or been terminated;
• The SEC shall have declared effective the registration statement on Form 10 of which this
information statement forms a part, and such registration statement shall not be subject to
any stop order or proceeding seeking a stop order; and
• No more than 40% of the JBG Included Properties and no more than 20% of the Vornado
Included Properties (each percentage based on the initial asset values agreed to by the
parties in the MTA) shall be designated as ‘‘Kickout Interests’’ (and therefore prevented
from being transferred to JBG SMITH) pursuant to the terms of the MTA (see ‘‘—The
Combination—The MTA—Kickout Interests’’ beginning on page 255 for more information
on Kickout Interests).
Conditions to the obligation of the Vornado Parties to consummate the separation and the
combination, including, among others:
• The receipt by Vornado and JBG SMITH of an opinion of Hogan Lovells US LLP, REIT
counsel to JBG, with respect to each REIT that is being contributed to JBG SMITH by JBG
in the combination, on which Sullivan & Cromwell LLP, REIT counsel to Vornado, and,
following the combination, JBG SMITH and its REIT counsel, shall be entitled to rely, to
the effect that each such REIT has been organized and operated in conformity with the
requirements for qualification and taxation as a REIT under the Code;
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• The receipt by Vornado and JBG SMITH of an opinion of Sullivan & Cromwell LLP to the
effect that JBG SMITH will be organized and operated in conformity with the requirements
for qualification and taxation as a REIT under the Code;
• The receipt by Vornado of an opinion of Sullivan & Cromwell LLP, satisfactory to the
Vornado board of trustees, to the effect that the distribution by Vornado, together with
certain related transactions, will qualify as a transaction that is generally tax-free for U.S.
federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code; and
• Certain key individuals shall have remained employed by the JBG Parties through the date
of the consummation of the combination, and shall not have repudiated their employment
agreements entered into with JBG SMITH prior to the consummation of the combination.
Conditions to the obligation of the JBG Parties to consummate the separation and the combination,
including, among others:
• The receipt by JBG and JBG SMITH of a written opinion of Sullivan & Cromwell LLP,
REIT counsel to Vornado, with respect to Vornado and to each REIT that is being
contributed by VRLP to JBG SMITH LP, on which Hogan Lovells US LLP, REIT counsel to
JBG, and, following the combination, JBG SMITH and its REIT counsel, shall be entitled to
rely, to the effect that Vornado and each such REIT have been organized and operated in
conformity with the requirements for qualification and taxation as a REIT under the Code;
and
• The receipt by JBG and JBG SMITH of a written opinion of Hogan Lovells US LLP, REIT
counsel to JBG, to the effect that JBG SMITH will be organized and operated in conformity
with the requirements for qualification and taxation as a REIT under the Code and its
proposed method of operation will enable it to continue to meet such requirements.
Subject to compliance with the MTA, Vornado will have the sole and absolute discretion to
determine (and change) the terms of, and whether to proceed with, the distribution and, to the extent
it determines to so proceed, to determine the record date and the distribution date and the distribution
ratio for the distributions by each of Vornado and VRLP. Vornado does not intend to notify Vornado
common shareholders or VRLP common limited partners of any modifications to the terms of the
separation that, in the judgment of its board of trustees, are not material. For example, the Vornado
board of trustees might consider material such matters as significant changes to the distribution ratio,
the assets to be contributed or the liabilities to be assumed in the separation. To the extent that the
Vornado board of trustees determines that any modifications by Vornado materially change the
material terms of the distribution, Vornado will notify Vornado common shareholders and VRLP
common limited partners in a manner reasonably calculated to inform them about the modification as
may be required by law, by, for example, publishing a press release, filing a Current Report on
Form 8-K or circulating a supplement to this information statement.
Material U.S. Federal Income Tax Consequences of the Distribution to U.S. Holders of Vornado
Common Shares
Subject to the limitations and qualifications described herein, the following is a discussion of
material U.S. federal income tax consequences of the distribution of our common shares to ‘‘U.S.
Holders’’ (as defined below) of Vornado common shares. This summary is based on the Code, U.S.
Treasury regulations promulgated thereunder, rulings and other administrative pronouncements issued
by the IRS, and judicial decisions, all as of the date of this information statement, and is subject to
changes in these or other governing authorities, any of which may have a retroactive effect. No
assurance can be given that the IRS would not assert, or that a court would not sustain, a position to
the contrary to any of the tax consequences described below. This discussion is based upon the
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assumption that the distribution, together with certain related transactions, will be consummated in
accordance with the MTA and all other agreements entered into in connection with the separation, the
distribution and the combination and as described in this information statement. This summary is for
general information only and is not tax advice. It does not purport to discuss all aspects of U.S. federal
income taxation that may be relevant to a particular holder in light of its particular investment or tax
circumstances or to holders subject to special rules under the Code (including, but not limited to,
insurance companies, tax-exempt organizations, financial institutions, broker-dealers, partners in
partnerships that hold our common shares, pass-through entities, traders in securities who elect to
apply a mark-to-market method of accounting, shareholders who hold their common shares as part of a
‘‘hedge,’’ ‘‘straddle,’’ ‘‘conversion,’’ ‘‘synthetic security,’’ ‘‘integrated investment’’ or ‘‘constructive sale
transaction,’’ individuals who receive our common shares upon the exercise of employee stock options
or otherwise as compensation, holders who are subject to alternative minimum tax or any holders who
actually or constructively own more than 5% of Vornado common shares). This discussion does not
address the U.S. federal income tax consequences to investors who do not hold their Vornado common
shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for
investment). This discussion does not address any state, local or foreign tax consequences.
For purposes of this discussion a ‘‘U.S. Holder’’ is any beneficial owner of Vornado common
shares that is, for U.S. federal income tax purposes:
• An individual who is a citizen or resident of the United States;
• A corporation (or entity treated as a corporation for U.S. federal income tax purposes)
created or organized in the United States or under the laws of the United States, or of any
state thereof, or the District of Columbia;
• An estate, the income of which is includible in gross income for U.S. federal income tax
purposes regardless of its source; or
• A trust if a U.S. court is able to exercise primary supervision over the administration of such
trust and one or more U.S. fiduciaries have the authority to control all substantial decisions
of the trust.
If a partnership, including for this purpose any entity that is treated as a partnership for U.S.
federal income tax purposes, holds Vornado common shares, the tax treatment of a partner in the
partnership will generally depend upon the status of the partner and the activities of the partnership.
An investor that is a partnership and the partners in such partnership should consult their tax advisors
about the U.S. federal income tax consequences of the distribution.
THE FOLLOWING DISCUSSION IS A SUMMARY OF MATERIAL U.S. FEDERAL
INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS
FOR GENERAL INFORMATION ONLY. HOLDERS SHOULD CONSULT THEIR TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO
THEM, INCLUDING THE APPLICATION OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN
TAX LAWS.
It is a condition to the completion of the separation, the distribution and the combination that
Vornado obtain an opinion of Sullivan & Cromwell LLP, satisfactory to the Vornado board of trustees,
to the effect that the distribution by Vornado, together with certain related transactions, will qualify as
a transaction that is generally tax-free for U.S. federal income tax purposes under
Sections 368(a)(1)(D) and 355 of the Code. The opinion of Sullivan & Cromwell LLP will be based on,
among other things, certain facts and assumptions, as well as certain representations, statements and
undertakings of Vornado and JBG SMITH (including those relating to the past and future conduct of
Vornado and JBG SMITH). If any of these representations, statements or undertakings are, or become,
inaccurate or incomplete, or if Vornado or JBG SMITH breach any of their respective covenants in the
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MTA or any of the other agreements entered into in connection with the separation, the distribution
and the combination, the opinion of Sullivan & Cromwell LLP may be invalid and the conclusions
reached therein could be jeopardized.
Notwithstanding the opinion of Sullivan & Cromwell LLP, the IRS could determine that the
distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal
income tax purposes. If the IRS were successful in taking this position, Vornado, JBG SMITH and
Vornado shareholders could be subject to significant U.S. federal income tax liability. Please refer to
‘‘—Material U.S. Federal Income Tax Consequences if the Distribution Is Taxable’’ below.
Section 355(h) of the Code provides that tax-free treatment will not be available unless, as relevant
here, Vornado and JBG SMITH are both REITs immediately after the distribution. If either Vornado
or JBG SMITH were to fail to qualify as a REIT immediately after the distribution and separation of
JBG SMITH from Vornado, Section 355(h) of the Code would cause the distribution and separation to
be treated as a taxable transaction to Vornado and its shareholders.
Material U.S. Federal Income Tax Consequences if the Distribution, Together with Certain Related
Transactions, Qualifies as a Transaction That Is Generally Tax-Free Under Sections 368(a)(1)(D)
and 355 of the Code.
Assuming that the distribution, together with certain related transactions, qualifies as a
transaction that is generally tax-free for U.S. federal income tax purposes under Sections 368(a)(1)(D)
and 355 of the Code, the U.S. federal income tax consequences of the distribution are as follows:
(i) the distribution will generally not result in any taxable income, gain or loss to Vornado; (ii) no gain
or loss will generally be recognized by (and no amount will be included in the income of) U.S. Holders
of Vornado common shares upon their receipt of JBG SMITH common shares in the distribution,
except with respect to any cash received in lieu of fractional JBG SMITH common shares (as described
below); (iii) the aggregate tax basis of the Vornado common shares and the JBG SMITH common
shares received in the distribution (including any fractional share interest in JBG SMITH common
shares for which cash is received) in the hands of each U.S. Holder of Vornado common shares after
the distribution will equal the aggregate basis of Vornado common shares held by the U.S. Holder
immediately before the distribution, allocated between the Vornado common shares and the JBG
SMITH common shares (including any fractional share interest in JBG SMITH common shares for
which cash is received) in proportion to the relative fair market value of each on the date of the
distribution; and (iv) the holding period of the JBG SMITH common shares received by each U.S.
Holder of Vornado common shares in the distribution will generally include the holding period at the
time of the distribution for the Vornado common shares with respect to which the distribution is made,
provided that Vornado common shares are held as a capital asset on the date of the distribution.
Vornado intends to publish on its website IRS Form 8937, which will provide information to its
shareholders that receive JBG SMITH common shares in the distribution regarding how to allocate
their tax basis in their Vornado shares after the distribution among the Vornado shares and the JBG
SMITH common shares. A U.S. Holder who receives cash in lieu of a fractional JBG SMITH common
share in the distribution will be treated as having sold such fractional share for cash, and will recognize
capital gain or loss in an amount equal to the difference between the amount of cash received and such
U.S. Holder’s adjusted tax basis in such fractional share. Such gain or loss will be long-term capital gain
or loss if the U.S. Holder’s holding period for its Vornado common shares exceeds one year at the time
of the distribution. The deductibility of capital losses is subject to limitations.
Material U.S. Federal Income Tax Consequences if the Distribution Is Taxable.
As discussed above, Vornado has not and does not intend to seek a ruling from the IRS with
respect to the treatment of the distribution and certain related transactions for U.S. federal income tax
purposes. Notwithstanding receipt by Vornado of the opinion of Sullivan & Cromwell LLP described
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above, the IRS could assert that the distribution does not qualify for tax-free treatment for U.S. federal
income tax purposes. If the IRS were successful in taking this position, the consequences described
above would not apply and Vornado, JBG SMITH and Vornado shareholders could be subject to
significant U.S. federal income tax liability. In addition, certain events that may or may not be within
the control of Vornado or JBG SMITH could cause the distribution and certain related transactions to
not qualify for tax-free treatment for U.S. federal income tax purposes. Depending on the
circumstances, JBG SMITH may be required to indemnify Vornado for taxes (and certain related
losses) resulting from the distribution not qualifying as tax-free.
If the distribution were to fail to qualify as a tax-free transaction for U.S. federal income tax
purposes, in general, Vornado would recognize taxable gain as if it had sold the JBG SMITH common
shares in a taxable sale for its fair market value. Vornado as a REIT may reduce its entity-level taxable
income by claiming a dividends-paid deduction equal to its distributions to its shareholders of its
taxable income during the taxable year. Due to Vornado’s dividends-paid deduction, the taxable income
or gain from the transactions would generally be taxable only at the Vornado shareholder level and not
at the Vornado entity level. All of the distribution of Vornado’s taxable income from Vornado’s taxable
disposition of JBG SMITH common shares may be in the form of the JBG SMITH common shares
being distributed to Vornado shareholders. Vornado shareholders would be taxed upon the receipt of
such distribution. A U.S. Holder who receives one JBG SMITH common share in the distribution with
respect to two Vornado common shares will (i) be subject to tax upon the receipt of ordinary dividends
and capital gain dividends, as designated by Vornado, up to an amount of taxable income equal to the
two Vornado common shares’ distributive share of Vornado’s entity-level taxable gain from the
disposition of JBG SMITH common shares, (ii) recover the U.S. Holder’s tax basis in the two Vornado
common shares until the tax basis in the Vornado common shares reaches zero, and (iii) be subject to
tax on any remainder as capital gain at short-term capital gain rates or long-term capital gain rates,
based on whether the U.S. Holder’s holding period of the two Vornado common shares is one year or
less or more than one year, respectively, with the amounts in (i), (ii) and (iii) collectively equal to the
fair market value on the date of the distribution of the one JBG SMITH share received by the U.S.
Holder. The U.S. Holder will have a tax basis in the JBG SMITH common shares equal to the fair
market value of the JBG SMITH common shares on the date of the distribution, and the U.S. Holder
will have a new holding period in the JBG SMITH common shares, regardless of the shareholder’s
holding period of its Vornado common shares.
In addition, even if the distribution were to otherwise qualify as tax-free under Section 355 of
the Code, it may result in taxable gain at the entity level, including under Section 355(e) of the Code if
the distribution were later deemed to be part of a plan (or series of related transactions) pursuant to
which one or more persons acquire, directly or indirectly, shares representing a 50% or greater interest
(by vote or value) in Vornado or JBG SMITH. For this purpose, any acquisitions of Vornado shares or
of JBG SMITH common shares within the period beginning two years before the separation and
ending two years after the separation are presumed to be part of such a plan, although Vornado or
JBG SMITH may be able to rebut that presumption. If the distribution is taxable in such a manner,
Vornado would be subject to tax at the entity level on the taxable gain, with no tax at the Vornado
shareholder level or with respect to JBG SMITH or its shareholders, but Vornado may reduce its
taxable gain by making an additional distribution of ‘‘deficiency dividends’’ to the Vornado
shareholders, which would be subject to tax to Vornado shareholders in the year of the distribution as
ordinary dividends and capital gain dividends, as designated by Vornado, and which would result in
certain interest payments to the IRS at the Vornado entity level.
In connection with the distribution, Vornado and JBG SMITH will enter into a Tax Matters
Agreement pursuant to which JBG SMITH will agree to be responsible for certain liabilities and
obligations following the distribution. In general, under the terms of the Tax Matters Agreement, if the
distribution, together with certain related transactions, were to fail to qualify as a tax-free transaction
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under Sections 368(a)(1)(D) and 355 of the Code (including as a result of Section 355(e) of the Code)
and if such failure were the result of actions taken after the distribution by Vornado or JBG SMITH,
the party responsible for such failure will be responsible for all taxes imposed on Vornado or JBG
SMITH to the extent such taxes result from such actions. For a discussion of the Tax Matters
Agreement, please refer to ‘‘Certain Relationships and Related Person Transactions—Tax Matters
Agreement.’’ JBG SMITH’s indemnification obligations to Vornado under the Tax Matters Agreement
will not be limited in amount or subject to any cap. If JBG SMITH is required to pay any taxes or
indemnify Vornado and its subsidiaries and their respective officers and trustees under the
circumstances set forth in the Tax Matters Agreement, JBG SMITH may be subject to substantial
liabilities.
Backup Withholding and Information Reporting.
Payments of cash to U.S. Holders of Vornado common shares in lieu of fractional JBG SMITH
common shares may be subject to information reporting and backup withholding (currently at a rate of
28%), unless such U.S. Holder delivers a properly completed IRS Form W-9, providing such U.S.
Holder’s correct taxpayer identification number and certain other information, or otherwise establishing
a basis for exemption from backup withholding. Backup withholding is not an additional tax. Any
amounts withheld under the backup withholding rules may be refunded or credited against a U.S.
Holder’s U.S. federal income tax liability provided that the required information is timely furnished to
the IRS.
U.S. Treasury regulations require certain U.S. Holders who receive JBG SMITH common
shares in the distribution to attach to such U.S. Holder’s U.S. federal income tax return for the year in
which the distribution occurs a detailed statement setting forth certain information relating to the
tax-free nature of the distribution.
THE FOREGOING DISCUSSION IS A SUMMARY OF CERTAIN MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT
LAW AND IS FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES
NOT PURPORT TO ADDRESS ALL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
DISTRIBUTION OR TAX CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OF
OTHER JURISDICTIONS OR THAT MAY APPLY TO PARTICULAR CATEGORIES OF
SHAREHOLDERS. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE
APPLICATION OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND THE
EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX
CONSEQUENCES DESCRIBED ABOVE.
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DESCRIPTION OF MATERIAL INDEBTEDNESS
Senior Unsecured Credit Facility
JBG SMITH LP expects to enter into a senior unsecured credit facility with Wells Fargo Bank,
National Association, as administrative agent, and other financial institutions as lenders from time to
time party thereto (the ‘‘Senior Unsecured Credit Facility’’) to become effective substantially
concurrently with the consummation of the combination. It is currently expected that the Senior
Unsecured Credit Facility will be executed and held in an escrow arrangement prior to the
consummation of the combination.
The Senior Unsecured Credit Facility will consist of:
• a revolving credit facility in an aggregate principal amount of up to $1.0 billion (the
‘‘Revolving Facility’’), which will mature four years from the effective date of the Senior
Unsecured Credit Facility (the ‘‘Effective Date’’), with two six-month extension options;
• a $200.0 million term loan (the ‘‘Tranche A-1 Term Loan’’), which will mature five and a
half-years from the Effective Date; and
• a $200.0 million term loan (the ‘‘Tranche A-2 Term Loan’’ and together with the
Tranche A-1 Term Loan, the ‘‘Term Loans’’), which will mature seven years from the
Effective Date.
JBG SMITH LP will be the sole borrower under the Senior Unsecured Credit Facility. The
Revolving Facility component includes borrowing capacity available in an amount of up to
$150.0 million for letters of credit and $75.0 million for short-term borrowings referred to as swing line
borrowings. The Senior Unsecured Credit Facility will also provide us with the option to increase the
size of the Revolving Facility and enter into additional incremental term loan credit facilities, subject to
certain limitations, in an aggregate amount not to exceed $600.0 million for all such increases. At least
twenty-five percent of the Tranche A-1 Term Loan will be advanced on the Effective Date and the
remaining portion of the Tranche A-1 Term Loan will be available to be drawn after the Effective Date
until the twenty-four month anniversary of the Effective Date. Our ability to access delayed drawings
during the portion of such draw period occurring six months after the Effective Date is subject to
having drawn at least fifty percent of the Tranche A-1 Term Loan within six months of the Effective
Date. The Tranche A-2 Term Loan is available to be drawn from and after the Effective Date until the
twelve month anniversary following the Effective Date. Borrowings, repayments and reborrowings will
be permitted under Revolving Facility from and after the Effective Date until the maturity of the
Revolving Facility.
Interest Rate and Fees
Borrowings under the Senior Unsecured Credit Facility will bear interest, at JBG SMITH LP’s
option, at a per annum rate equal to a margin over either LIBOR for an interest period from time to
time elected by JBG SMITH LP or a margin over a base rate determined in a customary manner. The
margin for the Senior Unsecured Credit Facility will vary based on a ratio of JBG SMITH’s total
outstanding indebtedness to a valuation of certain real property businesses and assets (the ‘‘Leverage
Ratio’’) and will range (a) in the case of the Revolving Facility, from 1.10% to 1.50% for LIBOR loans
and from 0.10% to 0.50% for base rate loans, (b) in the case of the Tranche A-1 Term Loan, from
1.20% to 1.70% for LIBOR loans and from 0.20% to 0.70% for base rate loans and (c) in the case of
the Tranche A-2 Term Loan, from 1.55% to 2.35% for LIBOR loans and from 0.55% to 1.35%, for
base rate loans. In addition, upon receiving an investment grade rating, JBG SMITH LP may elect to
convert to an alternative pricing structure that varies based on the applicable credit rating.
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In addition to paying interest on outstanding principal under the Senior Unsecured Credit
Facility, JBG SMITH LP will be required to pay a commitment fee to the lenders under the Revolving
Facility in respect of the aggregate commitments thereunder (whether or not utilized) at a per annum
rate equal to 0.15% or 0.30%, depending on the Leverage Ratio. JBG SMITH LP will also be required
to pay unused commitment fees under each of the Term Loans equal to 0.15% per annum times the
aggregate amount of the unused commitments in respect of the Term Loans, with such fee commencing
to accrue on the ninety-first day following the Effective Date. An extension fee is payable in connection
with each exercise of the six-month extension option under the Revolving Facility equal to (a) 0.0625%
of the Revolving Facility for the first exercise of the extension option and (b) 0.075% of the Revolving
Facility for the second exercise of the extension option.
Amortization and Prepayments
No scheduled amortization payments will be required under the Senior Unsecured Credit
Facility. With the exception of a prepayment premium applicable to the Tranche A-2 Term Loan, JBG
SMITH LP will be permitted to voluntarily repay amounts outstanding under the Term Loan at any
time without premium or penalty, subject to certain minimum amounts and the payment of customary
‘‘breakage’’ costs with respect to LIBOR loans. In the case of the Tranche A-2 Term Loan, a
prepayment fee will apply to amounts prepaid prior to the second anniversary of the Effective Date
equal to (a) 2.00% for such amounts prepaid prior to the first anniversary of the Effective Date and
(b) 1.00% for such amounts prepaid on or after the first anniversary, but prior to the second
anniversary, of the Effective Date.
Guarantees
The obligations under the Senior Unsecured Credit Facility will be required to be guaranteed
by each subsidiary of JBG SMITH LP that is a borrower or a guarantor of any unsecured indebtedness
in excess of $1,000,000, subject to certain exceptions. At the Effective Date, we expect that no
subsidiaries will be required to be guarantors under the Senior Unsecured Credit Facility.
Certain Covenants and Events of Default
The Senior Unsecured Credit Facility will contain certain customary affirmative and negative
covenants. Among other things, such covenants will contain restrictions, subject to customary
exceptions, on mergers, asset sales, the incurrence of indebtedness, activities and ownership of assets
directly by JBG SMITH, and the payment of dividends and distributions. In addition, the Senior
Unsecured Credit Facility will require that JBG SMITH LP satisfy certain financial maintenance
covenants, including:
• a Leverage Ratio of not more than 0.60 to 1.00 (subject to an option to increase to 0.65 to
1.00 for up to four fiscal quarters following an acquisition of real property assets);
• ratio of EBITDA to fixed charges of not less than 1.50 to 1.00;
• ratio of secured indebtedness to a valuation of certain real property businesses and assets
(‘‘Property Value’’) of not more than 0.50 to 1.00;
• ratio of unsecured indebtedness to the Property Value of unencumbered properties satisfying
certain criteria specified in the Senior Unsecured Credit Facility documentation of not more
than 0.60 to 1.00 (subject to an option to increase to 0.65 to 1.00 for up to four fiscal
quarters following an acquisition of real property assets); and
• ratio of EBITDA from unencumbered properties satisfying certain criteria specified in the
Senior Unsecured Credit Facility documentation to interest expense on unsecured
indebtedness of not less than 1.50 to 1.00.
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The Senior Unsecured Credit Facility will also include customary events of default, the occurrence of
which, following any applicable grace period, would permit the lenders to, among other things, declare
the principal, accrued interest and other obligations owing under the Senior Unsecured Credit Facility
to be immediately due and payable.
Property Level Debt
On a pro forma basis, JBG SMITH has approximately $2.2 billion aggregate principal amount
of consolidated debt outstanding ($2.2 billion at our share) and our unconsolidated joint ventures had
over $1.1 billion aggregate principal amount of debt outstanding ($380 million at our share), resulting
in a total of approximately $2.6 billion aggregate principal amount of debt outstanding at our share. As
of the completion of the separation, certain of these loans will be guaranteed, in whole or in part, by
JBG SMITH LP.
Typically, our property-level debt may restrict our ability to:
• incur additional indebtedness secured by the subject property, including secured or
unsecured mezzanine-type indebtedness;
• create or permit liens on the subject property, subject to certain exceptions and contest
rights;
• transfer the subject property or the direct or indirect equity interests in the Borrower;
• distribute cash flows from the subject property following an event of default or if the ratio of
cash flow from the property to the debt service on the loan falls below a specified level;
• make material alterations to the subject property without consent of the lender, not to be
unreasonably withheld; and
• enter into, modify or terminate material leases with respect to the subject property without
consent of the lender, not to be unreasonably withheld.
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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
JBG SMITH’s declaration of trust and bylaws will be amended and restated prior to the
separation. The following is a summary of the material terms of JBG SMITH’s shares of beneficial
interest that will be set forth therein. The summary and descriptions below do not purport to be
complete statements of the relevant provisions of the declaration of trust or of the bylaws that will be
in effect at the time of the distribution and that will be included as exhibits to JBG SMITH’s
registration statement on Form 10 of which this information statement forms a part. The summary is
qualified in its entirety by reference to these documents, which you should read (along with the
applicable provisions of Maryland law) for complete information on JBG SMITH’s shares of beneficial
interest as of the time of the distribution.
JBG SMITH’s authorized shares of beneficial interest consist of 500,000,000 common shares,
par value $0.01 per share, and 200,000,000 preferred shares, par value $0.01 per share. JBG SMITH’s
declaration of trust authorizes its board of trustees, with the approval of a majority of the entire board
and without any action on the part of our shareholders, to amend our declaration of trust to increase
or decrease the aggregate number of shares that JBG SMITH is authorized to issue or the number of
authorized shares of any class or series. Immediately following the distribution and the combination,
JBG SMITH expects that approximately 118.5 million of its common shares will be issued and
outstanding, based on the number of outstanding Vornado common shares as of May 31, 2017, the
distribution ratio of one JBG SMITH common share for every two Vornado common shares and the
number of JBG SMITH common shares expected to be issued to JBG investors in the combination,
and that no JBG SMITH preferred shares will be issued or outstanding.
Common Shares
Dividend, Voting and Other Rights of Holders of Common Shares
The holders of common shares will be entitled to receive dividends when, if and as authorized
by the board of trustees and declared by JBG SMITH out of assets legally available to pay dividends, if
receipt of the dividends is in compliance with the provisions in the declaration of trust restricting the
ownership and transfer of our shares and the preferential rights of any other class or series of our
shares.
Subject to the provisions of JBG SMITH’s declaration of trust regarding the restrictions on
ownership and transfer of JBG SMITH shares and except as may otherwise be specified in the terms of
any class or series of JBG SMITH’s shares of beneficial interest, the holders of common shares will be
entitled to one vote for each share on all matters on which shareholders are entitled to vote, including
elections of trustees. There will be no cumulative voting in the election of trustees, which means that
the holders of a majority of the outstanding common shares can elect all of the trustees then standing
for election. Generally, the holders of common shares will not have any conversion, sinking fund,
redemption, appraisal or preemptive rights to subscribe to any securities of JBG SMITH. If JBG
SMITH is dissolved, liquidated or wound up, holders of common shares will be entitled to share
proportionally in any assets remaining after satisfying (i) the prior rights of creditors, including holders
of JBG SMITH’s indebtedness, and (ii) the aggregate liquidation preference of any preferred shares
then outstanding.
Subject to the provisions of JBG SMITH’s declaration of trust regarding the restrictions on
ownership and transfer of JBG SMITH shares, common shares will have equal dividend, distribution,
liquidation and other rights and will have no preference or exchange rights. The common shares issued
in the distribution will be duly authorized, validly issued, fully paid and non-assessable. The rights,
preferences and privileges of the holders of JBG SMITH common shares will be subject to, and may be
adversely affected by, the rights of the holders of shares of any class or series of preferred shares that
JBG SMITH may designate and issue in the future.
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The transfer agent for the common shares is American Stock Transfer & Trust Company, LLC.
Restrictions on Ownership of Common Shares
The Beneficial Ownership Limit. For JBG SMITH to maintain its qualification as a REIT
under the Code, not more than 50% of the value of its outstanding shares of beneficial interest may be
owned, directly or indirectly, by five or fewer individuals at any time during the last half of a taxable
year and the shares of beneficial interest must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of 12 months, or during a proportionate part of a shorter taxable year
(except, in each case, with respect to the first taxable year for which an election to be taxed as a REIT
is made). The Code defines ‘‘individuals’’ to include some entities for purposes of the preceding
sentence. All references to a shareholder’s ownership of common shares in this section ‘‘—The
Beneficial Ownership Limit’’ assume application of the applicable attribution rules of the Code under
which, for example, a shareholder is deemed to own shares owned by his or her spouse.
The declaration of trust contains several provisions that restrict the ownership and transfer of
our shares that are designed to safeguard JBG SMITH against loss of its REIT status. These provisions
also seek to deter non-negotiated acquisitions of, and proxy fights for, us by third parties. The
declaration of trust contains a limitation that restricts, with some exceptions, shareholders from owning
more than 7.5% (in value or number of shares, whichever is more restrictive) of the outstanding shares
of any class or series, including our common shares. We refer to this percentage as the ‘‘beneficial
ownership limit.’’
Shareholders should be aware that events other than a purchase or other transfer of common
shares can result in ownership, under the applicable attribution rules of the Code, of common shares in
excess of the beneficial ownership limit. For instance, if two shareholders, each of whom owns 6% of
the outstanding common shares, were to marry, then after their marriage both shareholders would be
deemed to own 12% of the outstanding common shares, which is in excess of the beneficial ownership
limit. Similarly, if a shareholder who is treated as owning 6% of the outstanding common shares
purchased a 50% interest in a corporation which owns 10% of the outstanding common shares, then
the shareholder would be deemed to own 11% of the outstanding common shares immediately after
such purchase. You should consult your tax advisors concerning the application of the attribution rules
of the Code in your particular circumstances.
Closely Held and General Restriction on Ownership. In addition, common shares may not be
transferred if, as a result of such transfer, more than 50% in value of the outstanding JBG SMITH
common shares would be owned by five or fewer individuals or if such transfer would otherwise cause
JBG SMITH to fail to qualify as a REIT.
The Constructive Ownership Limit. Under the Code, rental income received by a REIT from
persons in which the REIT is treated, under the applicable attribution rules of the Code, as owning a
10% or greater interest does not constitute qualifying income for purposes of the income requirements
that REITs must satisfy. For these purposes, a REIT is treated as owning any shares owned, under the
applicable attribution rules of the Code, by a person that owns 10% or more of the value of the
outstanding shares of the REIT. The attribution rules of the Code applicable for these purposes are
different from those applicable with respect to the beneficial ownership limit. All references to a
shareholder’s ownership of common shares in this section ‘‘—The Constructive Ownership Limit’’
assume application of the applicable attribution rules of the Code.
In order to ensure that rental income of JBG SMITH will not be treated as nonqualifying
income under the rule described in the preceding paragraph, and thus to ensure that JBG SMITH will
not inadvertently lose its REIT status as a result of the ownership of shares by a tenant, or a person
that holds an interest in a tenant, the declaration of trust contains an ownership limit that restricts,
with some exceptions, shareholders from constructively owning, directly or indirectly, more than 7.5%
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(in value or number of shares, whichever is more restrictive) of the outstanding shares of any class or
series. We refer to this 7.5% ownership limit as the ‘‘constructive ownership limit.’’
Shareholders should be aware that events other than a purchase or other transfer of shares
may result in ownership, under the applicable attribution rules of the Code, of shares in excess of the
constructive ownership limit. As the attribution rules that apply with respect to the constructive
ownership limit differ from those that apply with respect to the beneficial ownership limit, the events
other than a purchase or other transfer of shares which may result in share ownership in excess of the
constructive ownership limit may differ from those which may result in share ownership in excess of the
beneficial ownership limit. You should consult your tax advisors concerning the application of the
attribution rules of the Code in your particular circumstances.
Automatic Transfer to a Trust If the Ownership Limits Are Violated. The declaration of trust
provides that a transfer of shares of any class or series that would otherwise result in ownership, under
the applicable attribution rules of the Code, of shares in excess of the beneficial ownership limit or the
constructive ownership limit would cause the shares of beneficial interest of JBG SMITH to be
beneficially owned by fewer than 100 persons, would result in JBG SMITH being ‘‘closely held’’ (within
the meaning of Section 856(h) of the Code) or would otherwise cause JBG SMITH to fail to qualify as
a REIT, will be void and the purported transferee will acquire no rights or economic interest in the
shares. In addition, our declaration of trust will provide that, if the provisions causing a transfer to be
void do not prevent a violation of the restrictions mentioned in the preceding sentence, the shares that
would otherwise be owned, under the applicable attribution rules of the Code, in excess of the
beneficial ownership limit or the constructive ownership limit, or that would cause JBG SMITH to be
‘‘closely held’’ or otherwise fail to qualify as a REIT, will be automatically transferred to one or more
charitable trusts (each, a ‘‘charitable trust’’) for the benefit of one or more charitable beneficiaries,
appointed by us, effective as of the close of business on the business day prior to the date of the
relevant transfer.
Shares held in a charitable trust will be issued and outstanding shares. Pursuant to our
declaration of trust, the purported transferee will have no rights in the shares held in a charitable trust
and will not benefit economically from ownership of any shares held in the charitable trust, will have
no rights to dividends or other distributions and will have no right to vote or other rights attributable
to the shares held in the charitable trust. Instead, our declaration of trust provides that the trustee of
the charitable trust will have all voting rights and rights to dividends or other distributions with respect
to shares held in the charitable trust, to be exercised for the exclusive benefit of the charitable
beneficiary. Under our declaration of trust, any dividend or other distribution paid prior to the
discovery by us that the shares have been transferred to the charitable trust shall be paid by the holder
of such dividend or other distribution to the trustee upon demand and any dividend or other
distribution authorized but unpaid shall be paid when due to the trustee. Subject to Maryland law, the
trustee of the charitable trust has the authority (i) to rescind as void any vote cast by a purported
transferee prior to the discovery by JBG SMITH that the shares have been transferred to the charitable
trust and (ii) to recast such vote in accordance with the desires of the trustee acting for the benefit of
the charitable beneficiary. However, if JBG SMITH has already taken irreversible trust action, then the
trustee will not have the authority to rescind and recast the vote.
Under our declaration of trust, within 20 days of receiving notice from us that shares have
been transferred to the charitable trust, the trustee of the charitable trust shall sell the shares held in
the charitable trust to a person or persons, designated by the trustee, whose ownership of the shares
will not violate the restrictions on ownership and transfer noted above. Upon such sale, our declaration
of trust provides that the interest of the charitable beneficiary in the shares sold terminates and the
trustee of the charitable trust is required to distribute the net proceeds of the sale to the purported
transferee and to the charitable beneficiary as follows: the purported transferee will receive the lesser
of (i) the price paid by the purported transferee for the shares or, if the purported transferee did not
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purchase the shares for the market price (as defined in our declaration of trust) in connection with the
event causing the shares to be held in the charitable trust, the market price of the shares on the date
of the event causing the shares to be held in the charitable trust and (ii) the price per share received
by the trustee (net of any commissions and other expenses of sale) from the sale or other disposition of
the shares held in the charitable trust. The trustee of the charitable trust may reduce the amount
payable to the purported transferee by the amount of dividends and distributions which have been paid
to the purported transferee and are owed by the purported transferee to the charitable trust, as
described above. Any net sales proceeds in excess of the amount payable to the purported transferee
will be paid immediately to the charitable beneficiary. If, prior to the discovery by us that common
shares have been transferred to the charitable trust, such shares are sold by a purported transferee,
then (1) such shares shall be deemed to have been sold on behalf of the charitable trust and (2) to the
extent that the purported transferee received an amount for such shares that exceeds the amount that
such purported transferee would have been entitled to receive if such shares had been sold by the
charitable trust, such excess shall be paid to the trustee upon demand.
Our declaration of trust provides that any shares transferred to the charitable trust are deemed
to have been offered for sale to JBG SMITH, or its designee. The price at which JBG SMITH, or its
designee, may purchase the shares transferred to the charitable trust will be equal to the lesser of
(i) the price paid by the purported transferee for the shares or, if the purported transferee did not
purchase the shares for the market price in connection with the event causing the shares to be held in
the charitable trust, the market price of the shares on the date of the event causing the shares to be
held in the charitable trust and (ii) the market price of the shares on the date that JBG SMITH, or its
designee, accepts the offer. Upon a sale to JBG SMITH, the interest of the beneficiary in the shares
sold will terminate and the trustee will distribute the net proceeds of the sale to the purported
transferee and the trustee will distribute any dividends or other distributions held by the trustee with
respect to such shares to the beneficiary.
JBG SMITH may reduce the amount payable to the purported transferee by the amount of
dividends and other distributions that have been paid to the purported transferee and are owed by the
purported transferee to the charitable trust, as described above. JBG SMITH’s right to accept the offer
described above exists for as long as the charitable trust has not otherwise sold the shares held in trust.
In addition, if our board of trustees determines that a transfer or other event has occurred that
would violate the restrictions on ownership and transfer of shares described above, the board of
trustees may take such action as it deems advisable to refuse to give effect to or to prevent such
transfer, including, but not limited to, causing JBG SMITH to redeem shares, refusing to give effect to
the transfer on JBG SMITH’s books or instituting proceedings to enjoin the transfer.
Other Provisions Concerning the Restrictions on Ownership. Our board of trustees, in its sole
discretion, may prospectively or retroactively exempt persons from the beneficial ownership limit and
the constructive ownership limit and increase or decrease the beneficial ownership limit and
constructive ownership limit for one or more persons, if in each case the board of trustees obtains such
representations, covenants and undertakings as the board of trustees may deem appropriate in order to
conclude that such exemption or modification will not cause JBG SMITH to lose its status as a REIT.
In addition, the board of trustees may require such opinions of counsel, affidavits, undertakings or
agreements or a ruling from the Internal Revenue Service as it may deem necessary or advisable in
order to determine or ensure JBG SMITH’s status as a REIT, and any such exemption or modification
may be subject to such conditions or restrictions as the board of trustees may impose.
The foregoing restrictions on transfer and ownership will not apply if the board of trustees
determines that it is no longer in the best interests of JBG SMITH to attempt to qualify, or to
continue to qualify, as a REIT or that compliance with any of the foregoing restrictions is no longer
required for REIT qualification.
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All persons who own, directly or by virtue of the applicable attribution rules of the Code, more
than 1.0% (or such lower percentage as required by the Code or the regulations promulgated
thereunder) of the outstanding shares of any class or series must give a written notice to JBG SMITH
containing the information specified in the declaration of trust by January 31 of each year. In addition,
each shareholder will be required to disclose to JBG SMITH upon demand any information that JBG
SMITH may request, in good faith, to determine JBG SMITH’s status as a REIT or to comply with
Treasury regulations promulgated under the REIT provisions of the Code.
The transfer and ownership restrictions described above may have the effect of precluding
acquisition of control of JBG SMITH unless the board of trustees of JBG SMITH determines that
maintenance of REIT status is no longer in the best interests of JBG SMITH or that compliance with
any of the foregoing restrictions is no longer required for REIT qualification.
Preferred Shares and Share Reclassification
Under the terms of JBG SMITH’s declaration of trust, its board of trustees may classify any
unissued preferred shares, and reclassify any unissued common shares or any previously classified but
unissued preferred shares into other classes or series of shares, including one or more classes or series
of shares that have priority over our common shares with respect to distributions or upon liquidation,
and we are authorized to issue the newly classified shares. Prior to the issuance of shares of each class
or series, the board of trustees is required by the Maryland REIT Law and JBG SMITH’s declaration
of trust to set, subject to the provisions of JBG SMITH’s declaration of trust regarding the restrictions
on ownership and transfer of our shares, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms and conditions of redemption for
each such class or series. These actions may be taken without shareholder approval, unless shareholder
approval is required by applicable law, the terms of any other class or series of our shares or the rules
of any stock exchange or automated quotation system on which JBG SMITH’s securities may be listed
or traded. As of the date hereof, no preferred shares are outstanding and JBG SMITH has no present
plans to issue any preferred shares. If JBG SMITH were to issue preferred shares, they would be
subject to ownership and transfer restrictions that are similar to the restrictions applicable to common
shares (including a prohibition on owning more than 7.5% of the outstanding preferred shares of any
class or series).
Power to Increase Authorized Shares and Issue Additional Common and Preferred Shares
We believe that the power of our board of trustees, without shareholder approval, to amend
our declaration of trust to increase or decrease the aggregate number of authorized shares or the
number of shares in any class or series that we have authority to issue, to issue additional authorized
but unissued common shares or preferred shares and to classify or reclassify unissued common shares
or preferred shares and thereafter to issue such classified or reclassified shares provides JBG SMITH
with flexibility in structuring possible future financings and acquisitions and in meeting other needs
which might arise. These actions may be taken without shareholder approval, unless shareholder
approval is required by applicable law, the terms of any other class or series of our shares or the rules
of any stock exchange or automated quotation system on which our securities may be listed or traded.
Although our board of trustees does not currently intend to do so, it could authorize us to issue
additional classes or series of common shares or preferred shares that could, depending upon the terms
of the particular class or series, delay, defer or prevent a transaction or a change of control of our
company, even if such transaction or change of control involves a premium price for our shareholders
or shareholders believe that such transaction or change of control may be in their best interests.
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Listing
JBG SMITH’s common shares have been accepted for listing on the NYSE under the symbol
‘‘JBGS’’, subject to official notice of distribution.
Sale of Unregistered Securities
Except as noted in the next paragraph, in the past three years, JBG SMITH has not sold any
securities, including sales of reacquired securities, new issues, securities issued in exchange for property,
services or other securities, and new securities resulting from the modification of outstanding securities.
In connection with its organization, on November 22, 2016, JBG SMITH issued 1,000 common
shares, $0.01 par value per share, to Vornado pursuant to Section 4(a)(2) of the Securities Act. We did
not register the issuance of these shares under the Securities Act because such issuance did not
constitute a public offering.
REIT Qualification
Under our declaration of trust, the board of trustees may authorize JBG SMITH to revoke or
otherwise terminate its REIT election, without shareholder approval, if it determines that it is no
longer in our best interest to continue to qualify as a REIT.
Transfer Agent and Registrar
After the distribution, the distribution agent, transfer agent and registrar for JBG SMITH’s
common shares will be American Stock Transfer & Trust Company, LLC. For questions relating to the
transfer or mechanics of the share distribution, you should contact:
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
www.astfinancial.com
(800) 937-5449
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
OUR DECLARATION OF TRUST AND BYLAWS
JBG SMITH’s declaration of trust and bylaws will be amended and restated prior to the
separation and the combination. The following description of certain provisions of Maryland law and
our amended and restated declaration of trust and bylaws is only a summary and does not purport to
be a complete statement of the relevant provisions at the time of the distribution. The summary is
qualified in its entirety by reference to these documents, which you should read (along with the
applicable provisions of Maryland law) for complete information on such provisions. The declaration of
trust and bylaws to be in effect at the time of the distribution will be included as exhibits to JBG
SMITH’s registration statement on Form 10 of which this information statement forms a part.
The Board of Trustees
Our declaration of trust and bylaws provide that the number of our trustees may be
established, increased or decreased only by a majority of the entire board of trustees but may not be
fewer than the number required by the Maryland REIT law, which is currently one, nor, unless our
bylaws are amended, more than 15, provided, however, that the tenure of office of a trustee will not be
affected by any decrease in the number of trustees. Our declaration of trust also provides that, except
as may be provided by our board of trustees in setting the terms of any class or series of shares, any
vacancy may be filled only by a majority of the remaining trustees, even if the remaining trustees do
not constitute a quorum, and any trustee elected to fill a vacancy will hold office for the remainder of
the full term of the trusteeship in which the vacancy occurred and until a successor is duly elected and
qualifies.
Our declaration of trust will initially divide our board of trustees into three classes. The initial
terms of the first, second and third classes will expire at the first, second and third annual meetings of
shareholders, respectively, held following the separation and combination. Initially, shareholders will
elect only one class of trustees each year. Shareholders will elect successors to trustees of the first class
for a two-year term and successors to trustees of the second class for a one-year term, in each case
upon the expiration of the terms of the initial trustees of each class. Commencing with the third annual
meeting of shareholders following the separation, which will be held in 2020, all trustees will be elected
annually for a term of one year and shall hold office until the next succeeding annual meeting and until
their successors are duly elected and qualify. There is no cumulative voting in the election of trustees.
Consequently, at each annual meeting of shareholders, the holders of a majority of our common shares
will be able to elect all of our trustees standing for election.
Under our bylaws, a plurality of all the votes cast at a meeting of shareholders duly called and
at which a quorum is present will be sufficient to elect a trustee. Notwithstanding such vote
requirement, our Governance Guidelines provide that any nominee in an uncontested election who
does not receive a greater number of ‘‘for’’ votes than ‘‘withhold’’ votes shall be elected as a trustee but
shall promptly tender his or her offer of resignation to the board of trustees following certification of
the vote. The Corporate Governance and Nominating Committee shall consider the offer to resign and
shall recommend to the board of trustees the action to be taken in response to the offer, and the board
of trustees shall determine whether or not to accept such resignation. The board of trustees shall
promptly disclose its decision and the reasons therefor in a Current Report on Form 8-K furnished to
the SEC. At such time as our board of trustees ceases to be classified, our board of trustees will amend
our bylaws to provide that a majority of all the votes cast at a meeting of shareholders duly called and
at which a quorum is present will be required to elect a trustee, unless the election is contested, in
which case a plurality will be sufficient.
For so long as our board remains classified, this provision could have the effect of making the
replacement of incumbent trustees more time-consuming and difficult. Until the third annual meeting
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following the separation, at least two annual meetings of shareholders will generally be required to
effect a change in a majority of the board of